It’s the retail equivalent of a lump of coal: supply chain disruption is retail’s most urgent priority right now since the holidays are coming up fast. While retailers and consumer packaged goods (CPG) suppliers have had to grapple with COVID-19 and digital transformation, now they must also manage reduced capacity along the global supply chain, hampering holiday sales success.
An astonishing 98% of retail executives experienced supply chain issues ahead of the 2021 holiday season. Unanimously, they said supply chain disruption will affect the upcoming holiday season “significantly or somewhat” and it will last at least through 2022. 1 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 29, 2021.
Let’s see how supply chain disruption is impacting retailers, CPG suppliers, and consumers—and how companies are mitigating risk to protect business continuity.
Today’s top supply chain risks
The scarcity of productive ports, people, and products has led to the following supply chain threats and retail responses.
Shipping delays
Trans-Pacific cargo ships face bottlenecks in major ports like Los Angeles, and these shipping delays threaten access to merchandise.2 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 29, 2021. , 3 Unglesbee, Ben. ‘We’re going to see a lot of bare shelves’: Retail preps for a holiday beset by supply chain pain. Retail Dive. October 4, 2021 Anticipating transit delays, proactive retailers like Mastermind Toys placed product orders six to eight weeks earlier than usual this year.4 Krashinsky Robertson, Susan and Matt Lundy. Canadian retailers take to the skies to mitigate holiday supply chain woes. The Globe and Mail. October 22, 2021. As contingency plans, more executives are finding new vendor partners and sourcing domestically to keep their supply chains closer to home.5 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 9, 2021.
Labor shortages
The Great Resignation of 2021 led 649,000 retail workers to leave their jobs in April alone.6
Bhattarai, Abha. Retail workers are quitting at record rates for higher-paying work: ‘My life isn’t worth a dead-end job.’ The Washington Post. June 21, 2021. Forbes. November 1, 2021. Now supply chains have slowed due to the lack of long-haul truckers, and logistics and warehouse personnel.7 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 29, 2021. To attract and retain workers, companies are increasing wages and benefits, and retail leaders like Amazon and Walmart are generously paying employees’ ’ college tuition.8 Johnson Hess, Abigail. From Amazon to Walmart, here’s how college tuition became the hot corporate benefit. CNBC. September 30, 2021.
Out-of-stocks
Low inventory availability led industry experts to warn that retail shelves could remain empty this holiday season.9 Unglesbee, Ben. ‘We’re going to see a lot of bare shelves’: Retail preps for a holiday beset by supply chain pain. Retail Dive. October 4, 2021. To avoid out-of-stocks, many companies have conscientiously prepared for an earlier surge in holiday shopping. Retail executives seek new ways to improve forecasting accuracy and streamline assortments for efficiency.10 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 9, 2021. Retailers and brands also protect product availability by using real-time data to identify shifts in demand and supply chain operations. 11 IRI Releases New Grocery Trends Data Ahead of Thanksgiving Holiday. IRI. October 27, 2021.
Inflation
Product prices will continue to rise as companies incur higher shipping, labor, and raw material costs. Notably, the cost of shipping a container of products from China has risen from $2,000 pre-pandemic to more than $25,000 now.12 Lempert, Phil. What’s Keeping Your Grocery CEO Up at Night. Forbes. November 1, 2021.
To offset rising costs:
- 59% of executives are increasing product prices or shipping costs for consumers
- 33% are using cost-based pricing to pass along higher costs to consumers
- 36% are taking a margin hit to keep prices constant
- 22% are reducing or eliminating planned promotions. 13 Unglesbee, Ben. Study: 98% of retail execs report supply chain issues ahead of holidays. Retail Dive. October 29, 2021.
Supply chain strain ripples across categories
Across major CPG categories, companies are finding ways to adapt to supply chain obstacles.
Food and Beverage
Among the shipping containers stuck in transit, some are filled with foods that are spoiling, creating waste and food safety concerns for grocers, and food and beverage suppliers. 14 Lempert, Phil. What’s Keeping Your Grocery CEO Up at Night. Forbes. November 1, 2021. Recent labor shortages prompted some supermarket chains to shorten their store hours.15 Lempert, Phil. What’s Keeping Your Grocery CEO Up at Night. Forbes. November 1, 2021. Meanwhile, long-haul transportation faces an aging workforce, as the U.S. will have a shortage of 100,000 truck drivers by 2023. Sourcing products and raw materials from smaller, regional farms across the country is one way companies are shortening their supply chains.16 Lempert, Phil. What’s Keeping Your Grocery CEO Up at Night. Forbes. November 1, 2021.
Right now, food companies are watching inventory levels like they’re as riveting as the Super Bowl. IRI reports product availability for seasonal items, including whipped toppings, liquid gravy, bakery pies, and frozen pie and pastry shells, fell 5 to 13 percentage points in late October compared to the same time last year.17 IRI Releases New Grocery Trends Data Ahead of Thanksgiving Holiday. IRI. October 27, 2021. Also, as prices rise for essentials, Kroger launched a new subscription program to provide fast, free grocery delivery and fuel rewards to save shoppers time and money.18 Anderson, George. Has Kroger found an answer for Amazon Prime and Walmart+? RetailWire. November 5, 2021.
Health and Beauty Care
To enhance last-mile service, Ulta Beauty teamed up with DoorDash to bring same-day delivery to select cities.19 Garcia, Tonya. Ulta to offer same-day delivery through partnership with DoorDash. MarketWatch. November 2, 2021. Beauty rival Sephora is using artificial intelligence (AI)-based demand forecasting to increase inventory turnover and product availability with greater accuracy and efficiency.20 Berthiaume, Dan. Sephora improves forecasting, replenishment with AI. Chain Store Age. October 21, 2021. As the retail industry endures a war for talent, Walgreens will raise its minimum wage to $15 per hour to stay competitive.21 Repko, Melissa. Walgreens shares surge as CEO Roz Brewer outlines plans to make health care its growth engine. CNBC. October 14, 2021.
General Merchandise
To navigate shipping slowdowns, Walmart, Target, Home Depot, and Costco all chartered their own ships.22 Baertlein, Lisa, Jonathan Saul and Siddharth Cavale. ‘Containergeddon’: Supply crisis drives Walmart and rivals to hire their own ships. Reuters. October 7, 2021. Target will employ 24-hour-a-day operations, move half of its containers at busy ports at night and increase night pickups by 10% during the fourth quarter.23 Unglesbee, Ben. Walmart and Target reassure customers they’ll be stocked amid global supply chain squeeze. Retail Dive. October 13, 2021. Amazon seeks long-haul cargo planes to carry goods from China.24 Day, Matt and Julie Johnsson. Amazon Seeks Used Long-Range Cargo Jets Able to Fly From China. Bloomberg. October 13, 2021.
As labor shortages reduce productivity, Amazon redirected inventory to fulfillment centers with sufficient staffing, adding $2 billion in labor inflation costs and $2 billion in operational disruption costs.25 Garland, Max. Labor constraints push Amazon to redirect inventory. Supply Chain Dive. October 29, 2021. Walmart is boosting wages for supply chain workers, and hiring new truck drivers and supply chain staff.26 Unglesbee, Ben. Walmart and Target reassure customers they’ll be stocked amid global supply chain squeeze. Retail Dive. October 13, 2021.
Companies get creative to keep products moving
As global supply chain pressures mount, retail companies are rethinking the status quo to salvage the 2021 holiday season.
Local sourcing
The ‘buy local’ trend takes over, as domestic suppliers help buyers skip global shipping chaos and shorten the supply chain. Small Is Big, as 93% of shoppers say supporting small businesses this holiday season is more important than ever due to the pandemic and 48% are more likely to try new brands than before the pandemic27 Vembar, Kaarin. It’s a ho ho horrible shipping season for small businesses, too. Retail Dive. November 1, 2021. . In response, Amazon launched Amazon Local Selling, a new service for small and medium businesses that lets consumers choose delivery or same-day pickup at a seller’s local store.28 Anderson, George. Amazon rolls out in-store pickup and local delivery for marketplace sellers. RetailWire. October 22, 2021.
Reshoring
Manufacturing is moving closer to home. Since the toy category is a holiday icon and more than 85% of toys sold in the U.S. are manufactured overseas, Mattel decided to nearshore manufacturing to meet high demand.29 Zimmerman, Sarah. Mattel nearshores manufacturing to bypass port bottlenecks during peak. Retail Dive. November 4, 2021.
Collaboration
To speed up the last mile, Walmart will use its robust distribution network to deliver products for Home Depot.30 Anderson, George. Is Home Depot’s deal with Walmart a sign of bigger things to come? RetailWire. October 6, 2021. Expect more strategic partnerships as companies pool their retail power and gain new capabilities like logistics, technology and data-sharing.31 Renshaw, Timothy. Seeking answers to transpacific cargo congestion questions. BIV. November 3, 2021.
Retail resilience emerges
Despite all the concurrent supply chain challenges, retailers and brands are showing impressive agility to solve issues during the most strategically significant sales quarter of the year. In fact, Deloitte predicts a year-over-year sales increase of up to 9% this holiday season due to pent up demand as we return to in-person celebrations.32 Deloitte: Holiday Retail Sales Expected to Increase 7-9%. Deloitte. September 14, 2021. While bigger retail players have robust supply chain networks, smaller businesses offer nimbleness, which can boost supply chain flexibility and connect consumers with products in time for this year’s festivities and beyond.