Supply Chain Challenges Won’t Ruin the Holidays—but They Will Change the Retail Industry

The National Retail Federation (NRF) projects holiday sales in the U.S. will increase 8.5% to 10.5% to as much as $859 billion in 2021 despite persistent supply chain bottlenecks. That’s in part because retailers like Walmart, Target and Lowe’s began stocking up “months ahead of schedule” to ensure they have sufficient inventory, per an NRF update on port congestion. According to White House-issued data from the Bureau of Economic Analysis, the U.S. supply chain is “moving record volumes of goods.” The bottleneck is perhaps best illustrated by the number of container ships waiting to get into the U.S. As of Nov. 1, there were 127,000 containers stuck for nine days or more at the ports of Los Angeles and Long Beach in California, which handle 40% of the imports that come into the U.S. via container ships. These ports processed 7 million containers from January to September 2021, which marked an 18% increase from the same period in 2018, a record for imports at the time. The White House attributes this uptick to increased consumer demand for goods and pandemic-related port and factory shutdowns in Asia. On top of that, there’s a shortage of long-haul truck drivers to transport goods once they are unloaded from cargo ships. “It's not a lucrative career anymore,” said Lisa Scheps, director of ecommerce retail at performance marketing network Reprise Digital. Additional complications include a scarcity of pallets and a gas shortage in China. “It's a tsunami that has [become] a perfect storm,” said Krishnakumar Davey, president of client engagement at analytics and research firm IRI Worldwide. Not as bad as predicted But despite predictions of doom and gloom for those who don’t shop extra early, the holiday season should actually be more or less fine for American consumers. Thomas O’Connor, senior director and analyst at research firm Gartner, noted many big retailers have announced they bought stock early and worked off-peak hours to ease supply chain bottlenecks. Big retailers like Walmart can also afford to charter ships and divert goods to smaller ports to minimize consumer pain. Scheps agreed: “I think retailers and the holidays will be fine.” That being said, smaller retailers could struggle. And U.S. consumers will likely have to pay more for their purchases. According to a Gartner survey of 100 CEOs, 59% said they’d respond to inflation by increasing prices. Economists’ predictions for inflation are reportedly already up considerably from July 2021 and, thanks in part to ongoing supply chain bottlenecks, are projected to continue into 2022. And while some retailers have a temporary fix, it’s by no means a long-term solution. “We've seen that, yes, someone like a Home Depot or a Walmart can charter their own vessels … but that brings both a potential cost challenge and potential uncertainty as to the future,” O’Connor said. That uncertainty lies in insourcing supply chain operations, which is not traditionally retailers’ turf. Then again, big retailers can absorb some of these additional costs, and any retailer has an opportunity to gain market share if they can run more efficiently and keep prices lower than competitors without impacting customer experience. “We've seen companies like Ralph Lauren, for example, come out and talk about going on the offensive in this turbulent time, and so the reality of any supply chain gridlock or other form of disruption is we can see businesses go on the offensive or the defensive,” O’Connor added. An early holiday season So far, retailers and ecommerce platforms alike are benefiting from consumers shopping early this year. They tried to encourage similar behavior in 2020 after Amazon delayed Prime Day until October, but Americans were distracted by the pandemic, presidential election and economic anxiety. “Retailers have some incentive to try and stretch the holiday period out a little bit earlier into at least early November, if not October, to have consumers changing their buying patterns a little bit [based on] what we've seen over in China, for example, with their Singles Day [on Nov. 11],” O’Connor said. Bringing the shopping peak forward will help retailers recover from the holiday order surge, which he noted is a good incentive to preach the gospel of early shopping. There’s also one more motive. “If there are issues and then we have a weather-related issue on top of that, it could really impact that end of December,” Scheps added. This muddled supply chain forecast won’t end at the stroke of midnight on Dec. 31, though. In fact, 64% of CEOs in the Gartner survey said they expect supply chain volatility to persist beyond 2022. “It could be perceived that this is a very near-term issue for holiday 2021,” O’Connor said. “And the reality is, this is going to be with us for a little while yet.” Scheps agreed, noting existing supply chain challenges will “change how we do business moving forward,” but what that looks like will largely depend on the big retailers. “Whatever those big retailers decide to do will have a massive trickle-down effect to what the other retailers decide to do,” she explained. Planning ahead However, there are a few lessons even smaller retailers can take away from the current kerfuffle. For starters, retailers can strive to get the most out of their stores by tapping into them as distribution centers, like Walmart. Nearly a year ago, the largest retailer in the U.S. announced plans to turn dozens of its 4,800 U.S. stores into automated fulfillment centers to keep pace with curbside and delivery orders. Retailers that adopt this model will be able to distribute goods faster, Scheps noted. And by moving merchandise, they can also avoid excess inventory, which will ensure healthy margins. A Walmart spokesperson was not available to comment. However, in an Oct. 8 blog post, Joe Metzger, evp of supply chain operations, wrote, “Increased demand for the products customers want is nothing new for this time of year … [and] knowing the challenges the overall supply chain system is facing, we’re taking additional steps to navigate the hurdles and minimize disruption.” In addition to chartering ships and diverting shipments, Walmart has rerouted inland deliveries by “utilizing less conventional transportation methods to avoid rail delays,” hired 3,000 drivers and opened up 20,000 permanent supply chain positions, according to the post. Another option is partnering with (or acquiring) a logistics company so retailers don’t have to figure out the supply chain problem alone. Apparel retailer American Eagle Outfitters did that recently with its $350 million purchase of supply chain startup Quiet Logistics, which came after acquiring parcel shipping company AirTerra. American Eagle declined comment on how the acquisitions will help it grapple with supply chain bottlenecks moving forward. However, Scheps said partnering with third-party warehouses can help retailers change how they hold and distribute goods—especially if those warehouses cover areas where they don’t have stores or distribution centers. “You can get a ton of analytics [from logistics partners],” Scheps said, noting she hopes to see more retailers follow American Eagle’s lead. “You can get a ton of customer data from them, so I don't think those are utilized enough.” A series of adjustments Retailers will also need to use data to better project what consumers want and adjust inventory planning accordingly “so you're not selling out of one thing and sitting on another,” Scheps said. Davey agreed, noting this extends to demand forecasting as “the algorithms haven't caught up completely” to where consumers have relocated throughout the pandemic. Therefore, they're potentially shipping too much to warehouses in dense urban areas and not enough to warehouses in surrounding areas. It also potentially extends to manufacturing as consumers change when they buy certain items. “With the supply chain gridlock, what we start to then see is that it leads to a distorted demand signal moving forward, because maybe some consumers are bringing forward purchasing of certain products,” O’Connor explained. “Essentially, that demand signal is getting distorted over time and leading to incorrect production of inventory.” Meanwhile, consumers may have to adjust their expectations for shipping times, along with their purchase behaviors. Instead of buying new items with free two-day shipping, they could order secondhand goods from resale marketplaces like Poshmark or Amazon Renewed. With pre-owned goods readily available, “if we are less reliant on brand-new items, we are less reliant on supply chains,” Scheps added. To get around these types of issues in the future, O’Connor also called for more visibility in the supply chain. “Today, many retailers lack anything like real-time visibility for inbound inventory,” he said. “Visibility provides a clear input for retailers as to potential bottlenecks as well as opportunities to reprioritize inventory deployments, promotions and other planned initiatives.”