Q4 2021 Market Watch: Holiday Peak Season Part 1

From forecasting issues and late inventory to unprecedentedly low resources, retailers and brands are scrambling to find creative solutions to avoid stock-outs and maintain customer loyalty during their most lucrative season. But with supply chain delays and disruptions making international headlines, more consumers are shopping earlier than ever before.

Consumer spending is back to pre-pandemic levels

Consumer demand is high. Retailers and brands recognize they must capitalize on demand to maximize annual profits.

• Shoppers will spend an average of $870 on holiday-related purchases, a 25% increase from 2020 ($694) and comparable to the 2019 average of $874.
• November and December holiday sales will rise between 8.5% and 10.5% YoY, reaching up to $859 billion in sales. Last year, sales rose 8.2% from 2019 to $777.3 billion. Before the pandemic, a 4.4% YoY increase in holiday spending was standard.
• ​​Retailers including Target, Best Buy, Amazon, and Walmart announced early holiday sales events. For instance, Target announced that from October 10 through December 24, shoppers can request a price adjustment on any item purchased at Target if the company drops the price later in the season.
• Some retailers generate 1/3 of their annual profit between Black Friday and Christmas.

But, goods are stuck on ships

Though consumer demand is high, “Containergeddon” may prevent holiday shoppers from getting the goods they want in time. Ongoing supply chain volatility threatens retailers’ ability to meet forecasts—making inventory availability dates uncertain for the foreseeable future. And many port leaders believe that congestion will continue through the summer of 2022.

• It now takes roughly 80 days to transport goods across the Pacific, twice as long as before the pandemic.
• Freight costs increased by more than 100%, and carriers demand payment upfront when terms used to be 60 days.
• Before the pandemic, a single ship at anchor was unusual. As of October 19, there were 62 container ships anchored off of the coast of southern California, 37 of them destined for the Port of LA and the other 25 destined for Long Beach.
• Overall, there were a record 100 cargo vessels—including barges, tankers, car carriers, and ships that carry bulk goods.
• As much as 20-25% of the goods stuck on ships are unlikely to make it onto shelves in time for Black Friday.

The supply chain is in the spotlight

The supply chain is under a microscope. The volume of news coverage on port congestion, labor shortages, potential stock-outs, and other disruptions decreases consumer optimism. In attempts to beat delays and ensure presents make it under the tree, consumers are shopping early.

• The White House hosted a supply chain roundtable on October 13 to discuss the ongoing supply chain crises. The group included leadership from the Port of L.A., Teamsters, Walmart, Target, FedEx, UPS, NRF.
• In just five days (October 10-14), The New York Times wrote three separate pieces about the supply chain.
• Almost half (45%) of people admit they never thought about how they received products before the COVID-19 pandemic, but now nearly everybody (91%) considers the supply chain when making a purchase.
• More than 50% of consumers will begin their holiday shopping before Thanksgiving (an uptick from 43.2% in 2020).

Shippers get creative to combat disruption

Over-ordering inventory, extending working hours, implementing labor incentives, and even chartering their own ships are just a few of the strategies retailers and brands are using in attempts to mitigate disruptions.

• Retailers like Lowe’s placed larger orders with suppliers earlier than usual ahead of the holidays.
• On Oct 13, 2021, Walmart, Samsung, and UPS committed to use night hours at West Coast ports to smooth cargo flows.

Walmart, Home Depot, Costco, Ikea, Dollar Tree, and Target are among the companies paying for their own chartered ships, a costly and unattainable option for most companies. Chartered ships cost nearly twice as much as shipping via major cargo liners. Plus, chartered ships tend to be small and move just a small slice of total imports.

• Home Depot dodged the Los Angeles gridlock by sending its Great Profit charter ship nearly 125 miles south to the Port of San Diego.
• Walmart chartered smaller ships to have the capacity to dock and unload at smaller ports where congestion is lower ahead of the holiday season. The retail giant even sent its employees to the congested ports to help facilitate landings.
• Costco chartered three ships—each capable of carrying approximately 1,000 containers—to bring goods between Asia and North America. Each vessel will make up to 10 deliveries for Costco over the next year. Those ships account for less than 20% of the warehouse retailer’s import volume from Asia next year.

Looking ahead

In early October, the White House asked for the following measures to address the strains on the supply chain:

• 24/7 operations at the ports—despite the ongoing national labor shortage
• Advancements in information sharing systems
• The creation of a single, consistent, and predictive appointment system that is interoperable among port terminals

Can these strategies effectively mitigate port congestion? What will the shelves look like on Black Friday? And what will consumer sentiment look like at the end of the month? Only time will tell.

Stay tuned for the next Flexe Market Watch for an update on how these disruptions evolve.