Retailers Battling Persistent Supply Headaches
The global supply chain has been in complete disarray since the beginning of the pandemic, but effects around the world have lasted much longer than many originally anticipated. One of those consequences is the fact consumers are likely to pay more for their gifts this coming holiday season as retailers are struggling with empty shelves and higher costs.
A major factor adding to the retail sector’s troubles is the constant backlog of container ships at ports from Los Angeles to Southern China. MRP has previously highlighted the shipping industry, noting that shippers were raking in record-breaking profits due to rates that skyrocketed to unimaginable levels.
Nikkei Asia recently reported that shipping rates from China to the US have recently plunged from their record highs, falling from $15,000 per 40-foot container to around $8,000. However, that is still well above the pre-pandemic rate of $1,500 and is expected to remain elevated through holiday shopping season as demand ramps up.
Marlo Cordero, executive director of the Port of Long Beach which will move roughly 20 million containers this year, told Business Insider that the shipping industry is in crisis mode due to persistent backlogs. That has led to constant delays and shortages for retailers across the US.
Not only has shipping across the seas been a headache but transporting goods by truck has been another hassle. Labor shortages in the trucking industry have stalled deliveries, added extended delays and cut into retailers’ profitability due to higher transport costs. The truck driver shortage is so significant that companies are now aiming to have teens, aged 18-20, learn how to drive large tractor-trailers to alleviate some of the effects of the deficit, per The Wall Street Journal.
The labor shortage is plaguing retailers as well. Retail Dive writes that companies are planning to hire hundreds of thousands of workers before the holiday shopping season. To due so, they’ve enticed workers with higher wages, bonuses and even tuition assistance. As of July, the number of retail job openings reached 1.2 million, up from 876,000 in 2020.
Price Tags Jump as Shoppers Gear Up for Holiday Season
While retailers have had to pay more and offer greater incentives to new hires, they’re also raising price tags at a time when shoppers are expected to spend significantly more this holiday season. A recent Klarna survey, highlighted by Retail Dive, found that 34% of shoppers expect to spend more during the holidays compared to the 2020 season.
Further, 62% of respondents plan to shop at big-box retailers, while 37% said they would frequent department stores for their holiday needs.
Those shoppers are ready to splurge sooner rather than later, as nearly half of US survey respondents said they plan to start their holiday shopping earlier this year.
As a result, a new report from The NPD Group projects that this year’s holiday spending will increase by 5% compared to 2020. Deloitte put out a similar report, projecting a rise of 7-9% this holiday season.
Late November, specifically Black Friday, is typically the start of holiday season, yet Halloween is expected to be very important this year for retailers. According to Fortune, the National Retail Federation expects Halloween sales to come in at a record $10 billion across the industry, a strong bounce back year after the holiday was significantly hindered by the pandemic last year.
Black Friday is also expected to bring much more foot traffic on a year-over-year basis, results from a new KPMG consumer pulse survey of over 1,000 consumers showed. Per the survey, 32% of consumers plan to shop in person on Black Friday, compared to only 16% last year. Retailers have also been rolling out their Black Friday deals earlier than ever, as ABC News reports Target and Amazon are offering holiday savings in early October.
Even as retailers roll out their deals earlier, peak holiday shopping is expected to see a significant rise as well. CNBC writes that Bain & Co., a management consulting firm, predicts a sharp jump in spending in November to December by roughly 7% year-over-year, reaching $800 billion.
Retailers have already been reporting increased foot traffic and empty shelves as stores are continually selling out of key items before the holidays. Home Depot announced they have sold out of an early release of Halloween decorations, possibly indicating similar consumer demand for Christmas decorations. Inventory shortages are likely to be an industry-wide issue in retail throughout the end of the year.
Supply side disruptions for retailers across the country are going to create one of the more expensive holiday shopping seasons for consumers in recent history. The combination of consumers ready to spend more after a holiday season dampened by the COVID-19 pandemic last year, as well as prices being raised to keep retailers profitable should point to strong end-of-year sales numbers for the industry.
While it remains to be seen how long those supply side struggles will last, the current level of inventory retailers possess is clearly not enough to match the pent-up demand shoppers are ready to unleash. Therefore, the retail industry is ready for another leg up in their impressive comeback compared to the pandemic ridden sales numbers seen last year.