Food & Drinks

Supply-Chain Whiplash: Santa’s Going To Be Late!

As the second wave of COVID-19 rages across the country and with the wildly anticipated election upon us, you would think that the megabytes of messaging forced onto consumers would keep them distracted from thinking about Christmas – definitely not so!

The entire retail world is giddy over consumers large appetite to shop despite the current contradictory consumer trends – worsening poverty and food insecurity levels due to job loss for some and increased retail spending for others. Consumer spending at retail has rebounded from the disastrous drop of 8.3% in March and 16.4% in April – spending rose 1.9% in September, according to the U.S. Department of Commerce. Retail sales have fully recovered to pre-pandemic levels according to most economists as demonstrated by Back-to-School spending on clothing at department stores rising 11%. At the same time, consumer credit scores are rising, and debt is being paid down leaving room for higher available credit balances, possibly for holiday gift purchases, at least for those that haven’t lost jobs or skipped debt payments.

Halloween merchandising seems to have been an afterthought, despite the 13% increase of chocolate and candy sales the 4 weeks ending September 6th versus same-time 2019, according to the National Confection Association. Certainly, #HalloweenIsHappening despite the huge Christmas displays that started going up the first week in October in stores across all retail channels. It was Amazon’s
move though of their annual deep discounting/savings event, Prime Day from its traditional July time-frame to October 13-14 that influenced the launch of the holiday shopping season that traditionally starts on Black Friday.

As consumers do their part to buy, suppliers have been attempting to forecast demand and plan production and logistics accordingly. New holiday sales estimates from Deloitte indicate a mixed sales increase, with a wide range between 1% and 5% given the contradictory consumer trends currently being monitored. Last year’s growth of 4.1% to approximately $1.14 trillion, according to the U.S. Censes Bureau could be matched or slightly surpassed to a high of $1.152 trillion. Despite the unreliable forecasts by the experts, all agree that it’s the tale of two consumers, the “haves” and the “have-nots”. Adobe Analytics , another data research firm, predicts U.S. online sales during November and December 2020 will set a new sales record by getting to $189 billion, a 33% increase versus prior year and represents two years of growth in one season, as compared to the 2019 increase of only 13%. The consumer move to on-line shopping is of no surprise and everyone in the retail business had been preparing for the that surge in demand.

Even if holiday forecasts are modestly close to target, most supplier inventories will not keep up and merchandise will likely arrive late – disappointing consumers. Many companies are reportedly struggling to fill retail orders now on a regular basis and could fall far off the pace of the usual industry target of 96% to 98% with on-time delivery – slumping into the 80% range according to Supply& Demand Chain Executive magazine survey. These supply-chain dynamics require consumers place holiday gift orders earlier than ever, pushing retailers to invest in preserving supply reliability, quality, and speed of order fulfillment – all during a pandemic. In other words, it’s too late to go investing in infrastructure and increasing production capacity. Transportation and logistics will also be impacted given that component parts and/or ingredients for manufacturing of goods that were typically on a six-to eight week turn around are now more like 12-14 weeks.  Order delivery expected in 60-90 days now taking more like 90-120 days before freight is ready to leave a factory. Add 30 days “on the water” if you’re dependent on a global supply-chain and you’ve got a real problem if you haven’t placed your retail order by at least mid-August.

Beyond manufacturing, shipping will cost more and a premium on freight is a certainty, now. UPS has announced plans for significantly higher holiday peak surcharges to offset the surge in residential drop-offs, while U.S. Postal Service (USPS) in mid-August said it would be adding holiday surcharges for the first time. Shipping capacity as of October 15 is already sold out for the holiday time frame. FedEx
and UPS confirmed they notified their largest customers that extra/new orders will have to wait to be handled.

Food shortages are not excluded from the common supply-chain challenges that exist. Add on-going COVID issues with the workforce within slaughter facilities for example, the hoarding that is again returning beyond essential items and the outlook for empty-shelves in grocery stores is worrisome. Recently, Doug McMillon, the CEO of Walmart
during an interview with Yahoo finance said, “things are getting better but we still have a way to go and I think it’s going to be a bit choppy for months to come as we deal with volatility as things change locally”.

Beyond consumer disappointment with late order fulfillment, the real tragedy is with small businesses which will suffer greatly as the big retailers get what they need given their early start and sophisticated technology that forecasts consumer demand. It definitely is a year of challenges, however the better informed we all are about the variables that effect our circumstances the better prepared we will be to deal with it. For now, buy more mistletoe and hang it everywhere as you buy time for Santa to get to you!

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