Since the roll-out of vaccines in early 2021, retailers have seen a surge in sales due to pent-up consumer demand, the continued impact of economic relief packages, and the roll-out of tax credits. As a result, year-to-date sales have improved considerably versus 2020. As the 2021 holiday season begins, the industry is expecting continued strong sales performance off what was already a strong 2020 holiday performance.
But even as retailers build inventory to meet holiday demand, there is still considerable risk that supply chain disruptions could dampen results.
In 2020, retailers cut back on orders drastically when COVID related restrictions were levied, but now the resurgent consumer demand has stressed supply chain capacity significantly. Given this supply and demand imbalance, the time to transport products has more than doubled and costs have increased to multiples of what they were pre-COVID.
We don’t expect the situation to normalize until sometime in 2022 at the earliest, which has left retailers scrambling to get product in the door in time for the holidays.
First, companies should order early and increase order size to ensure that adequate safety stock and reserve inventory is available to meet demand. In addition, they should try to incentivize their customers to shop early, before demand accelerates as we near the holiday season. Retailers should also consider diversifying sourcing and production, which can help to mitigate the effects of any localized supply chain issues.
Finally, investing in new supply chain technologies that can anticipate and help minimize risks will allow organizations to be more flexible.
Throughout most of 2021, retailers have seen prices increase due to lean inventory levels and a surging demand. This has led to strong sales growth and strong operating profits. Heading into 2022, as the economy continues to normalize, retailers should expect to see results deteriorate a bit as they start to comp over the strong 2021 sales.
Further challenging 2022 performance, retailers may start to see SG&A and occupancy costs start to rise as employees go back to work and negotiated short-term rent concessions roll-off.
We’re focused on how the relationship between e-commerce and brick-and-mortar will evolve, especially considering the accelerating pace of digital transformation over the past 18 months. Many retailers used COVID to re-examine their business models and, as a result, have redefined the relationship between their brick-and-mortar and e-commerce channels.
The new consumer behaviors and relationship touchpoints that the pandemic has ushered in are not expected to go away.