5 things retailers need to know going into the festive season
by Denys Hobson. The electricity crisis in China threatens further manufacturing delays and global supply chain disruptions right before the retail high season.Tuesday, 02 Nov 2021
by Denys Hobson. Just when we thought 2021 couldn’t get any worse, the electricity crisis in China threatens to result in further manufacturing delays and global supply chain disruptions right before the retail high season.
There are of course a number of scenarios that could play out due to the power cuts. Factories could prioritise orders based on client size, leaving many in the lurch. Shippers could cancel bookings, and suppliers may revert from making bookings in advance to mitigate the risk of paying shipping lines cancellation fees as they can’t guarantee when cargo will be ready for shipping. We could also see an increase in demand for air capacity as suppliers scramble to meet client delivery dates. For factories that have access to alternative power supply, they may need to increase their prices due to the higher input costs incurred.
Either way the knock-on effect is going to be felt throughout global supply chains and will ultimately cause disruptions right before the retail high season. Consequently, port congestion, sailing delays, capacity shortages, high freight rates and equipment shortages will likely remain common themes.
Most challenging routes
The Far East, South America and Middle East trade routes continue to be the most challenging and frustrating to navigate. The supply chain bottlenecks across the USA also remain troublesome and over the past month have escalated, which unfortunately places pressure on the shipping lines to restore capacity back into other trades and to reposition equipment to key export markets.
And while this is a global trend, the impact on local retailers is certainly being felt. We are seeing retailers placing orders now well in advance – choosing to sit with more stock than usual. We are also seeing some retailers deciding to cancel orders entirely or look for new suppliers from routes not affected as substantially. We are also seeing retailers having to pass increased landed costs on to consumers – where August and September saw sizeable increases being passed on, especially on bulk items.
Consumer shopping patterns have changed
This has also meant that consumer patterns have changed and are likely to change ever further. For need-based items, consumers are likely to shop at retailers that have the required items rather than shopping at their preferred outlets. We may even see changes in brand affiliation – just because they can get their hands on some brands rather than others. We are also likely to see a change in traditional gift giving – where consumers may look at more experiential gifts or cut back on expensive gifts given the price increases.
So, considering these changes, as well as global supply chain ripple effects, what should retailers know as they head into the high season?
1. Lead time: Now more than ever retailers need to be decisive in their business planning. It’s important to understand what these delays mean for your business and how much lead time needs to be built into the supply chain. Larger retailers have the capital and good buying power, but smaller retailers may risk no stock on shelves or having to absorb inflated costs or pass these on to consumers if they are not forecasting and planning correctly. The value between these two need to be weighed carefully – and each business is different.
2. Online presence: Consider your in-store vs ecommerce strategy. If you have stock, you may want to focus on increasing foot traffic through your stores and take the pressure off your ecommerce site. However, if you have diversified your model, have multiple products, but do not necessarily hold the stock – you may want to elevate your online presence. Those that have the opportunity to do both – and do them well – will likely do well.
3. Political factors: Keep an eye on the political landscape. Organised labour strikes to apply pressure on government and the private sector to, “fix the economic mess that the country finds itself in”, could have further implications for local supply chains – exacerbating delays, route changes and resource capacity constraints. Additionally, with talks of a fourth wave of the pandemic, restrictions may amend on short notice, so make sure you are prepared to pivot where necessary.
4. Security: Supply chains usually witness an increase in theft during this time and now, considering the unemployment rate, cargo will likely be targeted. As such, it’s important to understand how secure your supply chain is both in transit and in warehouse as unexpected losses could be detrimental at this time.
5. Beyond the silly season: Think further than Black Friday and festive season shopping. With delays and Chinese New Year just round the corner, it’s important to start planning for the months beyond the silly season. If you can’t capitalise now, make sure you ready to start the year off strong.
Scenario planning is key. Delays and bottlenecks will be a common theme for the near future, and retailers need to accommodate longer lead times for production and shipping. They also need to be far more flexible and those that are decisive in their planning, will reap the rewards the festive season has to offer.
Main image credit: Pixabay.com.
Denys Hobson is a logistics and pricing analyst at Investec for Business.
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