Published October 27, 2021 | Updated January 13, 2022
Business being good isn’t always a good thing. Shipping, inventory, and fulfillment are the basic underpinnings of a business that, at the end of the day, must work flawlessly for any sort of marketing efforts to be minisculely worth it – and they are all in flux right now.
Since the onset of the coronavirus pandemic in March 2020, retailers and brands around the world have increasingly been feeling strain on their supply chains. What started as factory shutdowns has snowballed into issues across the entire supply chain, from material and labor shortages to increased freight prices to extremely delayed shipping. Rising costs are making it even more difficult for businesses to get their products delivered to stores and customers alike.
We will keep this blog updated with all of the latest information that marketers and executives like you need to stay in the loop with the current state of the supply chain. Bookmark this article for easy access so you can stay informed!
Business being good isn’t always a good thing. Shipping, inventory, and fulfillment are the basic underpinnings of a business that must work flawlessly for marketing & advertising to be worth it – and they are all in flux right now.
Business impacts of supply chain strain: Nike, Home Depot, Ikea, & More
Supply chain troubles are requiring many businesses to raise their prices – including furniture retailer Ikea. The company has been experiencing supply chain cost increases since the onset of the pandemic but was able to absorb them until recent increased strain across the supply chain required them to raise their prices.
Much of its furniture has increased up to 50% in cost, with a spokesperson attributing the sharp rise to “a significant increase in costs across the supply chain, including raw materials, transport, and logistics.”
Supply chain strain has also been causing significant issues for Bed Bath & Beyond. The home goods retailer saw significant growth in 2020 with the industry seeing significant growth at the onset of the pandemic, but sales figures are now dropping below pre-pandemic numbers. The company changed its 2021 sales outlook from $8.1-$8.3 billion to $7.9 billion, representing a loss of up to $400 million.
Bed Bath & Beyond CEO Mark Tritton says that despite customer demand, sales have been pressured “due to the lack of availability with replenishment inventory at supply chain stresses.” For Bed Bath & Beyond, these stresses equated to around $100 million lost in Q3 2021, with December feeling the impact even more.
Other impacted retailers include Under Armour, whose inventory was down 21% in Q3 2021, and Old Navy, which lost an estimated $650 million in sales in 2021 due to supply chain backups. Nike lost 10 weeks of production after factory shutdowns last summer in Vietnam, where 51% of its footwear and 30% of its apparel is made
Home Depot has not been impacted as badly as other retailers by supply chain woes, largely due to taking proactive measures by making major investments in supply chain innovation in 2018.
The current state of supply chain strain
As we start 2022, the supply chain is seeing some slight improvements from changes being made to prevent delays and backups. Ocean shipping prices are down from September, but still more than triple what they were in December 2020. Supply chain woes weren’t as bad as experts feared over the holiday season, with on-shelf availability at 90% over the shopping period.
After severe delays at container ports in Los Angeles and Long Beach last fall (see our November 3rd update for more on that), President Biden announced at a Supply Chain Disruptions Task Force in December that the number of containers dwelling at the southern California ports had gone down nearly 50%. The average dwelling time for containers at the port in LA was down to four days from nine days in mid-October.
Making optimizations across the supply chain will be crucial to recovery. 300,000 manufacturing jobs were added in 2021, and FedEx added 14.4 million square feet to support package sorting in 2021. The in-the-works infrastructure bill would provide $17 billion in funds to speed and modernize the ports.
Many retailers are raising their prices and expanding their domestic manufacturing capabilities to cope with the issues. At the same time, as workers demand appropriate wages, manufacturers have increased wages by an unprecedented 3.5-3.8%. Costs are rising across categories for consumers and businesses alike.
The Omicron variant poses an additional threat to the labor portion of the supply chain, with cases and hospitalizations rising around the globe. As many businesses learned at the onset of the coronavirus pandemic, factory shutdowns pose a threatening bottleneck. We’ll continue to keep you posted on supply chain updates and their impacts on ecommerce as news comes in.
How the supply chain crisis impacted Cyber Week
For the first time ever, online Black Friday sales didn’t see annual growth this year. Ecommerce sales hit $8.9 billion after reaching $9 billion in 2020.
With the supply chain crisis leading to extremely delayed shipping times, many retailers strategically decided to start their holiday sales earlier than ever this year. Shoppers who walked into stores or visited their favorite brand’s website in early November or even October would notice exceptional deals that would normally be unheard of outside of Black Friday or Cyber Monday.
Instead of waiting until Cyber Week and risking products not being delivered in time, holiday shopping started early for retailers and consumers alike.
Cyber Monday also declined 1.4%. Online spending on Thanksgiving saw no change, reaching $5.1 billion for the second year in a row.
A mixed bag of issues: More on how the supply chain is impacting 2021 holiday shopping
Supply chain woes are not expected to have a horrendous impact on holiday sales this year, with retail sales still expected to grow 11% over last year’s holiday season. That would also amount to 8.6% retail growth for Q4 overall.
Impacts will be more significant for smaller businesses, though. For large retailers like Target and Walmart, spending money to hire extra workers, get extra containers, or purchase materials that have skyrocketed in price isn’t so difficult. But for small retailers that carry everything out with a small staff, getting products created and delivered is a lot harder this holiday season.
The supply chain issues are also a piece of the puzzle that is rising inflation, which is currently at the highest levels since 1990 – yet another reason why holiday shoppers have been right to start shopping early. Many retailers are offsetting the added costs from supply chain strain by putting them onto customers.
What happens when the biggest shopping day of the year happens in the middle of a supply chain crisis?
Black Friday is the busiest shopping day every year. Last year, Cyber Monday was the biggest day for online shopping in US history. And the other days that make up Cyber Week – the five-day period spanning Thanksgiving to Cyber Monday – always rank among the top shopping days of the year.
Almost two years into the coronavirus pandemic, marketers all understand that not everything shakes out like you think it will – and sometimes, the thing your brand least expects is what happens.
This year’s Cyber 5 will be no exception, with supply chain issues that started to crop up at the beginning of the pandemic snowball into a global supply chain crisis. From material and inventory shortages to labor shortages and wage concerns, all the way to clogged shipping ports and a lack of available containers, are all making it difficult for brands to produce products and get them out to customers.
To cope, many retailers have been spreading their Black Friday and Cyber 5 deals throughout the months of October and November instead of having specific deals on Black Friday. 67% of retailers are encouraging customers to shop early this year. The hope is that consumers will purchase gifts earlier to help ensure that they arrive in time for the holidays. In fact, 3 out of every 4 retailers will offer fewer Black Friday deals this year.
Supply chain issues make for yet another unprecedented holiday shopping season
It seems like headlines rave about holiday shopping starting earlier than ever every year, but 2021 is no exception with the recent surge in supply chain strain. A survey conducted by Oracle in September found that one in every five Americans had already purchased their first holiday gift.
Consumers are finding various ways to minimize the impact they feel from major issues with shipping and fulfillment during the busiest shopping time of the year. 44% of Millennials plan to purchase more gifts than they need to just in case some orders are delayed or canceled, while 58% of Baby Boomers say they’ll try to avoid the issues by purchasing more gift cards than usual.
In-store shopping may be more emphasized this year, with 66% of consumers now feeling comfortable shopping at indoor shopping malls (especially when mask mandates are enforced). In fact, 27% of consumers say they’ll be making more purchases in stores than online this holiday season to avoid supply chain issues. (For more news on how the coronavirus pandemic has transformed shopping, visit our How COVID-19 Is Impacting Ecommerce blog post!)
Retailers should also prepare for a potential surge in holiday gift returns that could even further complicate the supply chain issue. Your brand’s audience may dictate how much of a problem this is for you – 48% of Millennials plan to return half to all of their gifts, while 90% of Baby Boomers have no plans to return any of their gifts!
How Target and Walmart are mitigating supply chain issues this holiday season
Target and Walmart are assuring customers that their stores won’t be impacted by global supply chain issues this holiday season. With more cash flow and resources than smaller businesses, these large retailers are able to more easily navigate the uncertain waters.
Target is focusing heavily on providing an easy holiday shopping experience this year. To keep to that promise, Target is rolling out changes to its shipping infrastructure including hiring 30,000 permanent team members for its supply chain and moving the majority of their containers at clogged southern California ports (more on that in last week’s update) during the night to keep ports clear during the day.
Target’s stores-as-fulfillment model also makes it easier for customers to get their products. According to a press release, the retailer’s inventory is up substantially over this time last year.
Walmart is working to improve inventory levels and was up year-over-year in Q2. To keep their promise of mitigating supply chain issues, Walmart is making changes like expanding delivery capabilities to deliver online orders straight from stores, hiring 20,000 permanent supply chain positions and over 3,000 new drivers, redirecting transportation routes on both land and sea, increasing pay for supply associates, and more.
Not a container shortage, but a surplus: What’s going on?
The reasons underlying the global supply chain crisis are manifold. Brands and retailers around the world are facing issues ranging from material shortages to not being able to get products onto containers to major shipping delays.
One of the biggest issues revolves around not a shortage of containers, but a surplus. Some major ports are overflowing with empty shipping containers, making it difficult for ships with full containers to get to land.
Two southern California ports that together bring in 40% of all shipping containers that come into the US are currently facing this problem. Typically, when a ship comes into port, it will drop off a container and pick up an empty container in its place. But with docks full, ships aren’t able to offload their full containers to pick up the empty ones. There’s also not much extra space for empty containers at the ports.
This results in a continuous cycle where ships aren’t able to offload their products because ports are full, and ports aren’t able to get rid of their containers because the ships can’t remove their full ones.
To help the issue, the mayor of Long Beach, CA changed zoning rules to allow four empty containers to be stacked on top of each other instead of just two.
The many pieces of the supply chain weren’t prepared for the surplus of ecommerce purchases that has been happening since March 2020. The backlogs at US ports are expected to continue into mid-2022.
What’s the reason for the supply chain strain?
Businesses, retailers, and consumers alike are all becoming increasingly concerned with supply chain congestion that is causing major shipping delays.
The COVID-19 pandemic catalyzed what some are calling a shipping crisis. With shoppers being more frivolous about their discretionary spend along with shopping less in stores last year, retailers were selling less and had less of a need for their shipping containers, and the containers were put away and saved for later. Then, consumer demand for products surged earlier and more than expected, leaving retailers and container companies unprepared and unready.
Now, it’s incredibly difficult for many retailers to find available space on containers, or even available containers in the first place. With demand for freight high and supply so low, it’s becoming very expensive for brands to ship the products their customers buy – and their products are still likely to be delayed.
Rising freight costs are a huge risk to profits. In some cases, freight costs are over half the value of the products being shipped, which is typically unheard of for most industries. Shipping rates and import costs are increasing each month. Inventory flow is almost impossible to predict, making it difficult for retailers to plan or make decisions with precision.
Consumers are feeling the brunt of the impact with delayed shipping times, which is often a deciding factor in a customer’s purchase decision. It will be crucial for retailers to communicate realistic expectations with shoppers, especially as we approach the holiday season.