Written by Jared Bonebright
The holiday season is one of the most joyous times of the year. Time to give thanks, be with your family and friends, and ultimately show the people closest to you how much you appreciate them. This year, however, as markets recover from COVID-19, they find themselves faced with the unique challenges of adapting to supply chain issues and resulting shifts in consumer behaviors.
Before delving into the effects of supply chain issues, it is important to understand why they’re happening in the first place. Covid-19 has had the greatest impact on the one thing every single business needs to operate: Labor. Fear of contracting the virus has in many ways changed the landscape of the labor market- with unemployment still hovering around 5% (up from pre-pandemic levels of about 3.5%). What makes this number more concerning is that the labor force participation rate has also dropped by ~2%, meaning that about 7 million Americans not only lost their jobs, but quit looking for work entirely and are no longer counted for unemployment statistics (Civilian Labor Force Participation Rate, 2021).
This drop in willingness to work has caused unilateral labor shortages, harming supply chains from raw material harvesting, to factory work, and beyond. Even with most industries recovering, components with longer lead times are shining through as clear bottlenecks for production. For example, semiconductor shortages alone are significantly impacting 169 industries -namely automotive and tech manufacturing- according to Goldman Sachs (Howley, 2021). These shortages and delays are no secret to consumers and retailers as well, with more than 50% of consumers reporting some level of concern over their perfect gifts being out of stock, and ~80% of retailers feeling uncertain about if they can keep products on their shelves through Black Friday (Statista, 2021).
In recent years, the addition of Cyber Monday has added some much-needed flexibility to online shopping- giving consumers the option to stay home and alleviate some of the pressure retailers face on the fateful day after thanksgiving. E-commerce has experienced an average annualized growth rate of 38% over the past 12 months – which alone is massive- but when considering increases in the inevitable demand surge during the holidays… some businesses just can’t keep up (Statista, 2021). Online grocery sales in particular typically have experienced a 10% bump leading up to thanksgiving, but this year, that “bump” ended up being 560% (Garcia & Herships, 2020). While other areas of ecommerce have certainly not seen a hike quite as large, it helps to illustrate the scale of holiday shopping boosts being seen across the internet.
Unfortunately, the shipping industry was even less prepared for these boosts than retailers. February 2020: shipping companies realized there was about to be an unprecedented drop in shipping as the pandemic first began to hit the US and the rest of the world. In their plans to stay afloat, a collective 674 commercial oceangoing ships were sold for scrap (BAN, 2020). Over the rest of the year, that number only grew. Fast forward to today, demand for shipped goods is surging, labor is difficult to come by, there are new regulations on shipping to avoid the spread of covid 19, and fleets are still depleted because ships like those scrapped take years to build. In August 2019, it cost an average of $1326 to ship a 40 foot container from Asia to the US by sea, in August 2021 that cost has risen to $18245 – almost 14 times more expensive and up to 83% slower than in 2019 (Freightos, 2021). All this has come together to create the perfect nightmare for everyone involved with holiday shopping this year.
Beyond corporations, this has left consumers with two bad options: be in large crowds on black friday exposing yourself to risk with no guarantee of success, or shop online with higher shipping costs and unreliable shipping timelines. Interestingly enough, the overwhelming favorite of the two has been to shop online. As previously mentioned, Ecommerce has grown 38% this year, with 78% of people finding their deals and doing some shopping online, with 48% of them shopping entirely online this holiday season (Morning Consult, 2021). While it certainly started the change, this shift in consumer behavior is not only due to COVID-19. 76% of the respondents also agreed that going out on Black Friday to find deals in person just isn’t worth it to them anymore (Morning Consult, 2021).
Business response to shipping concerns and changing customer behavior has also accelerated a gradual shift away from the single day mega-sales we have come to know. Since products only are shipped in smaller quantities, it hasn’t been possible to acquire the same stock as previous years, and customers want to buy earlier because of shipping concerns. So what is the solution? Sales lasting multiple weeks. This slows the incidence of demand, mitigating some delays as they are able to more readily keep up with orders. In addition, customers are happier because they have also been able to leave time buffers so Santa can still come on Christmas, even with unforeseen delays.
Some brands haven’t embraced the new, longer sales, and have suffered the consequences. They have seen longer stockouts, more inconsistent shipping times, and as a result are experiencing an exodus of previously loyal customers (Charm et al., 2021). In droves, they are deciding the stress and uncertainty is simply not worthwhile, and instead buy from a competitor that is more prepared for these unpredictable and unprecedented holidays.
With all this being said… What can we expect from the future? Within the next few years, black Friday will start to look very different. Continuing growth in Ecommerce is largely crowding out in-store purchases, and with younger generations placing less emphasis on tradition, the act of going to stores before the sun is up will be part of the holidays for fewer families. I expect sale start dates to become earlier, and end later. Many sales this year have lasted for a week before and after Black Friday, and I would expect that period to increase to two weeks. Some businesses may implement temporally tiered sales, where smaller sales begin earlier and more, larger sales come out as Black Friday becomes closer. This allows sales to start earlier but still maintain the anticipation and engagement they have enjoyed up to this point.
I expect the shipping industry and supply chain issues to wane over the next few years, although experts are struggling to estimate how long it will take, and given that the pandemic improves and eventually goes away, I believe the holiday shopping landscape will be much less stressful for retailers and shoppers alike.
References
BAN. (2020, February 4). List of Ships Scrapped Worldwide Reveals US Shipowners are Among the Worst Dumpers. Basel Action Network. https://www.ban.org/news/2020/2/4/9hu9e6ipsha32r1td837frek8u3kuq
Charm, T., Laird, J., Robinson, K., & Touse, S. (2021, November 17). US holiday shopping 2021: Strong demand meets big challenges. McKinsey & Company. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/us-holiday-shopping-2021-strong-demand-meets-big-challenges
Civilian labor force participation rate. (2021, December 3). U.S. Bureau of Labor Statistics. https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm
Freightos. (2021, December 20). Shipping Delays & Freight Cost Increases 2021 & 2022. https://www.freightos.com/freight-resources/coronavirus-updates/
Garcia, C. G., & Herships, S. H. (2020, December 9). Shipping Delays: Why Your
Packages Are Taking Forever. NPR. https://www.npr.org/2020/12/09/944777576/shipping-delays-why-your-packages-are-taking-forever
Howley, D. H. (2021, April 25). These 169 industries are being hit by the global chip shortage. Yahoo! News. https://news.yahoo.com/these-industries-are-hit-hardest-by-the-global-chip-shortage-122854251.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuc291cmNlbmdpbmUuY29tLw&guce_referrer_sig=AQAAAKYf7spdxRd3uIgO-d0eEqWlc6_mUmSC1fQuNQHoq_gJ3O_MVb5HTWypIgBnsz0_bdiUDb1delgZaufXNFBej-aJkktpfFowt0JTI-lNn0RnyN0y4v4SMFWapFA7w8cRH0m5OQNmm94WJiId_dIcVa3aEnanikioty9CSXgla20p
Morning Consult. (2021, December 17). Holiday Season Tracker 2021. https://morningconsult.com/holiday-season-tracker-2021/
Statista. (2021, November 5). Supply shortages in the holiday season – statistics & facts. https://www.statista.com/topics/8668/supply-shortages-in-the-holiday-season/#dossierKeyfigures