The global supply chain crisis has hit home and raised the inevitable question - will Christmas be cancelled? Or more pragmatically, will it be thin gruel for the Holidays with empty shelves in the stores?
There’s already been evidence of panic buying of ‘essentials’. Last time we saw this was at the start of the pandemic when toilet roll hoarding was a thing. This time around, it’s turkeys and tins of Quality Street that are shaping up to be prized items.
The problems are being seen around the world. In the US, the White House has been warning that, “There will be things that people can't get”, while in the UK Dave Lewis, former CEO of the country’s biggest supermarket chain Tesco, has been drafted in by the government with a remit to ‘save Christmas’.
All of this comes at a time when the all important Holidays season is about to kick in. Salesforce’s ongoing analysis of the retail sector has come out with some grim predictions. While the firm pitches that digital sales will once again top $1 trillion globally, it also warns of rising costs and decreased inventory due to pressure on the global supply chain.
The firm identifies three main pressure points on the supply chain worldwide - manufacturing capacity, logistics costs, and a labor shortage. All that adds up to a hefty price tag with the US retail sector alone looking at $223 billion of extra costs this year. And those costs will inevitably be passed on with the result that consumers can expect to see a 20% rise in prices this Holidays season.
The Salesforce research warns that product availability should be a genuine concern this year:
Bottlenecks at ports and skyrocketing container costs, two of the key pressures shaping the holidays, should cause consumers to be concerned about product availability. Retailers are responding by consolidating Stock Keeping Units (SKU) — online product catalogs are predicted to shrink by 5% over last year as supply chain challenges continue to play out.
What this will lead to, again entirely predictably, is even earlier ‘shop early for Christmas’. Recent years have already seen the footprint of Black Friday and Cyber Monday expand to take in most of November. Salesforce predicts an acceleration here with pre-Cyber Week shopping growing 3% worldwide to $129 billion. Rob Garf, VP and GM of Retail, Salesforce, comments:
While last holiday was defined by the last mile, this year is expected to be dominated by the first mile. With persistent global supply chain disruptions, retailers must draw consumers to their online and physical stores early in the season to fulfill demand and capture holiday spending.
There’s a chink of good news in that Salesforce predicts a 94% year-on-year decrease in the risk of packages being delayed, down to 40 million worldwide from 700 million last year. So if you can find what you’re looking for and the retailer has it in stock, there’s a better chance of getting it to your front door. Or at least you do in the US. Other parts of the world are less likely to fare well. If you’re in the UK, for example, and looking at sitting in 3 hour lines to try to find petrol to put in your car, the outlook might be somewhat more downbeat...
Some of the larger retailers are taking their own actions to get stock in front of consumers and rethinking their traditional approaches to supply chain management. The likes of Walmart, Home Depot and Target have been chartering their own container ships in a bid to beat the blockages. The latter, whose tight control on supply chain efficiencies has powered its status as an omni-channel retail bellwether, explained its strategy in a blog posting:
As the second largest US importer, we’ll continue to partner with our vendors to tackle supply chain challenges together this season and beyond to ensure we can deliver for our guests. We also chartered our own container ship to regularly bring Target merchandise from overseas ports to the US. As co-managers of the ship, we can avoid delays from additional stops and steer clear of particularly backed-up ports. Once products arrive stateside, we’re partnering closely with our vendors and transportation partners to move it quickly to our stores, keeping our shelves well-stocked and ready for guests.
Meanwhile Chip Bergh, CFO at Levi Strauss, said recently:
Our team is doing an outstanding job mitigating the unprecedented challenges on the supply and logistics side. Our globally diversified sourcing strategy, combined with our scale, are a source of competitive advantage. We long ago decided that we would not source more than 20% of our product from any one country. Our sourcing currently spans 24 countries. We did this to avoid concentrations to be less exposed to bottlenecks in production capacity, like what's going on currently with Vietnam, where our exposure is less than 4% of our global volume.
Our supply chain network, including cross sourcing, allows us to quickly shift production. As an example, after the China tariffs were implemented, we rapidly reduced our China exposure in the US from 8% to less than 1%. And more recently, as backups of West Coast ports began to intensify, we quickly redirected the vast majority of our goods to come in through East Coast ports. We're also leveraging our scale, expertise and strong relationships with our vendors to protect our capacity and control costs. We've locked in approximately 70% of ocean volume and costs through the summer of next year.
And at CostCo, it’s a similar story, according to CFO Richard Galanti:
From a supply chain perspective, the factors pressuring supply chains and inflation include port delays, container shortages, COVID disruptions, shortages on various components, raw materials, and ingredients; labor cost pressures, and truck and driver services. Even on a domestic side, various major brands are requesting longer lead times. In some cases, [there has been] difficulty in finding drivers and trucks on short notice and lead times on ingredients and packaging have been extended in some cases. So planning is crucial.
Containers, trucks, and drivers all are impacting the timing of deliveries and higher freight costs. Despite all these issues, we continue to work to mitigate cost increases in a variety of different ways and hold down and/or mitigate our price increases passed onto the members. We've also chartered three ocean vessels for the next year to transport containers between Asia and the US and Canada, and we've leased several thousand containers for use on these ships. Every ship can carry 800 to 1,000 containers at a time and we'll make approximately 10 deliveries during the course of the next year.
All of which is a sterling effort to fend off a Christmas crisis but one that comes with a hefty price tag. While the Targets and Walmarts of the world can face up to that, smaller retailers aren’t so fortunate…
An unwelcome reminder to all omni-channel retailers of the importance of a highly-optimized back end to support operations. Having a lovely app and a ‘bells-and-whistles’ website is all good and great, but if consumers can’t actually get the goods they’ve ordered, what’s the point? The current crisis has many external factors coming into play, both globally with the worldwide economy re-opening and with some localized factors, such as staffing shortages in the US and the additional impact of Brexit in the UK, for example. Happy Holidays, everyone!