What’s the Story?

The 2020 holiday retail shopping season is not going to be business as usual. The year started off with trade tensions, followed by Covid-19 lockdowns and gradual store reopenings. In this report—the third of our four-part series—we look the impact of the coronavirus crisis on product availability and retail supply chains, and what this means for retailers as they plan for the holidays.

Why It Matters

The holiday retail season is the most important selling season of the year, typically signified by the turning point of “Black Friday,” when retailers become profitable for the year. In 2020, with many retailers losing several months’ revenue due to forced store closures, in addition to the current challenging retail environment—with sales down significantly year over year—the holiday retail season is likely to be even more essential for many retailers’ survival. There remain a large number of variables—encompassing both supply and demand—that will be key for retailers this holiday season.

Our Questions for the Holidays: In Detail

1.  Will retailers have enough of the right product to meet holiday demand? Are current challenges for in-stock availability (such as appliances, bicycles) a precursor to lack of availability for the holidays? When the Covid-19 pandemic arrived on the scene, our advice to retailers and brands was to “cut, cut, cut”—marketing, existing/forward orders and all discretionary spending. Discretionary retailers and brands did just that, with some planning to bring in 20–50% less product for the holiday selling period. Even if retailers had wanted to increase orders, the world’s supply chain is not prepared to increase manufacturing to the level needed to meet 3% holiday sales growth at short notice. Our conversations with many retailers in March and April suggested a potential double-digit decline in holiday sales, yet sales trends in June and July reveal an active shopper, with year-over-year growth of 10% in each month. Clearly, there is a disconnect between retailers’ initial expectations and recent monthly retail sales figures. Both retailers and consumers are likely to find creative solutions to solve any supply-demand mismatches. As the season approaches, retailers can near-source private-label/exclusive goods for holiday, while consumers can gift online classes, charitable donations, consignment goods and the old-reliable gift cards. Inventory levels at the end of the third quarter will provide greater insight into the magnitude of the potential increase or decrease in holiday spending this year. 2.  How reliable and transparent will the supply chain be this holiday? Since the spread of the pandemic, shoppers have experienced inaccurate delivery forecasts—with goods arriving sometimes early and sometimes late—and retailers and brands have been hampered by the lack of a single view of inventory. As the retail ecosystem—gradually and sometimes in a step function—returns to normalized levels, the supply chain will not be restored in unison, causing delays in manufacturing and delivery, ultimately resulting in lost sales. We think that the unpredictability and variability in supply chains could cause consumers to move holiday shopping earlier in the season (an October start). Target recommended shopping this early so that consumers could be certain to get their preferred items. As suggested above, a shortage of physical goods could be alleviated through the purchase of gift cards, which can be spent in January or when goods become available.

What We Think

Implications for Brands/Retailers

• Retailers will need to constantly monitor and tune supply chains to ensure that holiday products get into stores early and that shelves remain stocked to meet demand.
• Retailers will also have to maintain flexibility in their supply chains to handle potential shortages and manage alternative assortments if products sell out.

Implications for Technology Vendors

• Technology vendors will need to help retailers adapt and tune their supply-chain software to deal with shortages and unanticipated changes in demand.
• Tech firms can also help retailers prepare supply chains for changes in shopping habits, such as increases in e-commerce, e-gifting or the use of gift cards.
• Fulfillment software will likely need to accommodate higher demand for delivery, curbside delivery or BOPIS (buy online, pick up in store) from consumers reluctant to enter stores or malls.