While holiday projections are typically all the rage once October hits, ongoing supply chain disruption led by Covid-19’s delta variant has hijacked the conversation, instead leaving retailers and consumers alike wondering how much product will be available, and how this affects pricing.
“The delta variant has dampened optimism felt by consumers earlier in the year, causing uncertainty that will require manufacturers and retailers to be prepared, patient, and persistent in their actions throughout the holiday shopping season,” said Marshal Cohen, NPD’s retail chief industry advisor. “Watch for a very early and strong start, followed by more pronounced lulls and a late surge.”
With pressures including factory closures, shipping container costs and labor shortages all impacting supply chains, Salesforce estimates that the nation’s retail industry will face an extra $223 billion in the cost of goods sold this holiday season.
The added costs will inevitably thin out margins, and have already caused many retailers and logistics companies to hike prices. Dollar Tree, for one, is adding some higher-priced goods that break with the $1 mold amid soaring freight rates, AP reported. Meanwhile, Salesforce says digital commerce growth will be driven by as high as a 20 percent rise in consumer prices despite 2 percent fewer global and 4 percent fewer U.S. holiday orders expected. In total, digital sales are expected to grow 7 percent to $1.2 trillion globally, as well as 10 percent to $259 billion in the U.S., both record highs, it added.
Madhav Durbha, vice president of supply chain strategy at business spend management software provider Coupa, agrees with the sentiment, saying shoppers will spend more this holiday season than they are anticipating, yet at the same time, end up with less product. With this in mind, eye-popping markdowns may be sparser than typical peak seasons of years’ past.
“We don’t anticipate retailers to be deeply discounting merchandise like normal years so the level of rebating and discounting models, we expect to be lower this time around because of the supply-side shocks,” Durbha told Sourcing Journal.
The anticipated price increases are also likely to result in customers having to make trade-offs in their holiday shopping habits.
“A consumer wallet can only afford so much,” Durbha said. “They’ll have to settle for a lesser brand or a lesser amount of merchandise that they can buy. They’ll either downgrade their taste a little bit—or instead of getting that gaming device, they may instead choose to upgrade and go up market a little bit on clothing, for example.”
Shoppers concerns of delays may push apparel to made-to-order, nearshoring
In the U.S., some are anxious that these supply chain struggles will make for an unhappy holiday. An Oracle study of 1,000 American consumers indicates that nearly all (92 percent of) shoppers are concerned that supply chain shortages will prevent them from being able to buy what they need, while 66 percent worry out-of-stocks will ruin their holidays.
Oracle also said that 87 percent of U.S. consumers surveyed in September have been negatively impacted by supply chain issues over the past year, with 60 percent unable to purchase certain items due to shortages. Fifty-one percent were forced to cancel orders due to delays, while 40 percent were even rationing essential items out of fear of running out.
Given the shortage of goods, if there’s any time for the apparel industry to consider alternatives such as made-to-order manufacturing or even nearshoring it is now, according to Durbha. He expects these trends to accelerate during the holiday season alongside the already fast-moving resale market as more retailers try to work around their inventory and transportation issues.
“It all comes down to: ‘How can I shorten the distances that goods need to travel,” Durbha said. “It’s not just a near term thing. If I’m too single threaded in certain areas, I must make sure that I’m building alternate sources of supply. It’s really about getting surgical in understanding what [is] the cost to serve customers. You can go to China or Vietnam and order in bulk, and then mark down 70 percent of the inventory, or you can be far nimbler and set up a new nearshore shop. What you don’t make up in volume, you make up in resiliency and responsiveness.”
Salesforce remains upbeat on shipment times
If consumers are worried about holiday delays, Salesforce has a more positive outlook on the situation than most, with the CRM giant predicting a 94 percent decrease in packages at risk of being delayed, or 40 million packages worldwide—down from 700 million last year. Just five million packages are expected to be at risk of delay in the U.S.
These predictions come as consumers place fewer orders with more items per order, and with more last-mile carriers in the mix. Salesforce anticipates that 40 percent of all U.S. retailers also now have a brick-and-mortar presence offering buy online, pickup in store (BOPIS) options.
But despite the upbeat outlook, consumers are still very concerned about potential delays, with 84 percent saying delays would cause them to cancel their order and 80 percent saying delays or shortages would even cause them to stop buying from a brand entirely. And 58 percent of U.S. shoppers would stop buying from a brand after one to three delays or disruptions, according to Oracle.
Nearly half (45 percent) of consumers are purchasing gifts earlier to allow for delays (45 percent) and are now paying closer attention to global shortages of items they regularly use (40 percent).
And the pricing inflation may actually be tolerated in some cases this holiday season, as 81 percent of people are willing to pay a premium for smooth and timely delivery of their items.
“These insights paint a clear picture that the ongoing global supply chain issues are impacting many Americans,” Jon Chorley, group vice president of supply chain management product strategy and chief sustainability officer for Oracle, said in a statement. “Ultimately, the supply chain is where brand promises are either met or broken. Organizations that are able to provide the supply chain efficiency and transparency that customers expect will be rewarded with greater customer loyalty and accelerated business growth.”
Less product drives need for more marketing, supply chain transparency
Where Salesforce and Oracle agree is that product availability will pose a problem.
Shoppers surveyed by Oracle are fearful of out-of-stock items (62 percent) and challenges in buying seasonal products (45 percent), and harbor increased stress and anxiety while shopping (44 percent). And according to Salesforce, retailers will consolidate SKUs by 5 percent over last year as supply chain challenges continue to play out.
Salesforce, which analyzes aggregated data from over 1 billion global shoppers across more than 40 countries at its client retailers, predicts consumers will come out early to shop again this holiday season to avoid the out-of-stocks, with pre-Cyber Week shopping growing 6 percent in the U.S. to $29 billion and 3 percent globally to $129 billion.
Salesforce said that first-party data will be more important than ever this holiday to find and engage consumers as Google and Apple are phasing out cookies and third-party ad tracking, making opportunities such as loyalty programs, social media engagement and personalized email marketing more pivotal. The San Francisco-based business projects 30 percent growth in e-commerce traffic from social referrals and an 18 percent rise in email marketing across November and December, compared to last holiday season.
And Oracle, the Silicon Valley-grown company now based in Austin, Texas, believes post-purchase transparency is the key to the supply chain woes.
Shoppers want brands to provide more regular updates about shipping status (63 percent), be more transparent on inventory (59 percent) and potential supply chain issues (54 percent), and offer refunds (56 percent) or discounts (52 percent) if items are delayed or cancelled.
As many as 76 percent of people would trust and be more willing to buy from a company if they knew it used advanced technologies like artificial intelligence to manage its supply chain.
While there have been many predictions on when supply chain disruptions will subside, with some expecting it will continue until the middle of 2022, Oracle found that nearly all (92 percent of) consumers believe there will be more supply chain disruptions in the future, and two-thirds (66 percent) are concerned that these issues will never end.