Retail
Retail

Retail high season in jeopardy

by Denys Hobson. Widespread global shipping disruptions as a result of the ongoing pandemic interruptions may jeopardise South Africa’s retail high season.

by Denys Hobson. Widespread global shipping disruptions as a result of the ongoing pandemic interruptions, may jeopardise South Africa’s retail high season unless importers move fast. With Black Friday sales and the December seasonal sales just a few months away – deals may be few and far between and even more so than usual as retailers find themselves in a bind.

While the sector is recovering on the back of pent-up demand, following a -21.8% decline in imports last year due to the temporary halt on global trade, Investec anticipates a GDP growth of 2.9% for 2021. There are rising headwinds regarding vessel capacity and container availability, port congestion, increasing freight rates and production delays. Consequently, importers and retailers are facing the very real risk of receiving stock too late for the sale season. Retailers need to weigh up the cost of landing stock in time to make sales versus the cost of not having stock available.

Promotions pressure

Retailers each year are banking on increased Black Friday sales, and the importance of this was highlighted last year where some retailers ran their Black Friday deals for the entire month of November. In previous years we have seen retail sales spike considerably during Black Friday promotions, and so inability to receive stock timeously could have costly implications for retailers’ businesses. South African retailers are competing with global demand and to demonstrate how dominant Black Friday and year-end sales have become, Chinese manufacturers are working at such capacity to produce enough stock for the rest of the world’s peak retail period that electricity supply to factories is being rationed in some regions, resulting in lost production time of one to three days per week.

Let’s also not forget that this time of year sees increase demand and interest from consumers, where rapid delivery requests and increased mobile adoption are driving change. We have already seen a shift towards online shopping – given Covid restrictions and lockdown levels – and this has placed added pressure on distribution and logistics networks. As a result, ecommerce retailers and logistics providers need to start developing plans to accommodate a possible increase in demand as soon as possible. Over the last few years, we have seen how retailers have examined implementing/integrating new technologies and automate processes across their supply chains – as a means to compete more aggressively in the marketplace and offer customers same-day or next-day delivery; but this is a demand few companies have been able to meet during the COVID-19 pandemic.

Why the delays?

COVID-19 disruptions, the Suez Canal blockage, on-going port congestion and vessel omissions are having a crippling impact on supply chains. The result is a slew of reliability and capacity challenges, with some cargo arriving between two to five weeks later than scheduled. Shipping lines, for instance, are experiencing such severe backlogs in some regions, forcing them to stop accepting new container bookings for weeks until the backlogs have been addressed.

It is crucial to also bear in mind that the Asia-US trade has a massive impact on global supply chains, and with US peak shipping season yet to get into full swing, market conditions are poised to get worse rather than better in the coming months. This means any stock – received on time or even ahead of schedule – will increase in potential value if one’s competitors have failed to get stock in time. This could result in increased market share, adding a different dimension to discussions about the cost of shipping.

How to overcome this?

Having a strong freight forwarding partner that has strategic relationships with both shipping and air lines, as well as an extensive global network that can offer multiple shipping options will be invaluable. Another option is for retailers to ship orders earlier than normal and make provisions for longer lead times to ensure better product availability for consumers. And of course, ordering earlier comes with cost implications and retailers who move earlier than usual will carry that stock longer, putting pressure on their working capital and cash flow. This is where your financial service partner can play a major role in providing the much needed support.

Retailers will also need to be flexible and decisive when considering shipping options. For example, if a 40ft container is not available at the time of stuffing the container at origin, you may need to accept shipping in two 20ft containers to ensure you can meet your in-store dates. There will be a trade-off between additional shipping costs versus the risk of receiving stock late resulting in lost sales.

And as demand is expected to increase further in the coming months placing further pressure on capacity, equipment, and rate levels. This will likely result in shippers and importers scrambling to meet deadlines and switch orders from sea to airfreight. This change in shipping mode will drive demand up for airfreight and consequently rates will increase, resulting in higher landed costs and potentially creating another set of challenges. Retailers may need to absorb the higher landed costs or pass the costs onto consumers.

Uncertainty continues

The reality is that uncertainty will remain a given across supply chains for months to come. Importers need to mitigate the risks of receiving orders late as well as keep costs in check. A real opportunity exists to gain market share if you can land stock in time while remaining competitive in the marketplace. Collaboration with the likes of your suppliers, logistics agent and financial service provider will be key for retailers to navigate through these unpredictable and challenging times. A few key fundamentals need to be covered in overcoming the challenges.

It’s going to be a tough few months for importers, and retailers alike, as backlogs, costs and equipment shortages cause headaches. The only way to get ahead is to be pro-active in your planning, and decision making, and hopefully Black Friday doesn’t become a ‘blue’ one as seasonal sales are critical for the recovery of the retail sector.

 

Main image credit: Photo by Anil Reddy on Unsplash.

 

 

Denys Hobson is a logistics and pricing analyst at Investec for Business.

 

 

 

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