Rising COVID Cases Could Impact the Holiday Shopping Season. Here’s How the Retail Industry Should Prepare.
Keith Jelinek
Disruptions in the global supply chain are resulting in product shortages for retailers across the United States.
Labor shortages at checkout stands, empty shelves in brick-and-mortar locations and delayed orders from online retailers. No matter where retailers and consumers turn, they face COVID-19’s impact. Despite hopes earlier this year that 2021 would see a return to some semblance of a normal holiday season, consumers remain worried about the impact of COVID on their holiday plans. The past few months have shown that retailers again need to stay prepared and flexible—and be ready for anything.
Part of the challenge for retailers will be their own complex supply chains. Consumers likely don’t realize how a single weak link can cause a bottleneck thousands of miles away. But that’s the reality for retailers (especially amid the pandemic) as they simultaneously deal with shoppers’ mercurial preferences.
Those preferences can change at a moment’s notice, even in normal times. Most significantly, where and how US consumers spend money this holiday season depends largely on the number of domestic COVID-19 cases—which doesn’t necessarily coincide with pandemic surges around the world. This means that even if things look brighter as 2021 draws to a close and shoppers spend a lot in stores, demand could outstrip overseas manufacturing capabilities.
Even if they don’t understand all the particulars—i.e., everything that could go wrong—59 percent of US consumers are worried that their holiday plans could be disrupted. That’s according to a survey by BRG Retail conducted as the Delta variant began to rage this summer.
It’s possible that percentage could increase come Black Friday. But as we look to the holiday shopping season, key issues are in play when it comes to retailing.
Pandemic Surges and Retail Unpredictability
COVID-19 case numbers are, obviously, outside of retailers’ control. But surges threaten predictability, which is what retailers rely on when they place orders for holiday shopping—which they begin doing up to 10 months in advance. Public sentiment at the time of an order can influence which products are purchased, and in what amount, a variable that’s even harder to manage in disruptive times.
Shipping issues at the Ports of Los Angeles and Long Beach, for example, began last winter. Orders were placed during the early days of lockdown to mitigate the worst surge of the pandemic up to that time, and retailers were conservative in their ordering. The first signs of problems surfaced in late spring as consumers started to return to malls and purchases began to climb. Subsequently, following widescale distribution of COVID-19 vaccines in the summer, sales took off—without nearly enough supply to fulfill demand.
We’ll see what happens in the coming months given current economic issues and concerns about the Delta variant. But the hit-or-miss planning hasn’t been the only factor driving uncertainty for retailers. Some ports have been shut down completely. Ships have been paused, containers have been hard to come by (they now command more than five times the price they did a year ago) and carriages—as well as truck drivers—to move containers cross-country remain scarce.
Put another way, many moving parts in the global supply chain simply are not moving. Take airlines, which carry more freight than people realize: COVID-19 has forced reduced flights and mothballing of fleets, especially from overseas, where many retailers looked to ship trending product quickly to their store shelves.
Inflation and other pandemic impacts are leading to higher retail prices. Rising prices on their own might turn off shoppers—though most in our survey say that their spending will not change, and a larger group (28 percent) says they will spend more, rather than less (20 percent). Whether that holds in the coming months is anyone’s guess.
What Retailers Should Do
How should retailers address these uncertainties? Hedging their bets isn’t the answer, as doing so put many of them in this complicated situation in the first place. As stock dwindled this summer, shortages became all too frequent, leaving many consumers waiting weeks for products like electronics, appliances, furniture and clothing.
Specialty apparel merchants, pharmacies, grocery markets and department stores should do the opposite of hedging and allocate trendy items now to get them in stores early. In our research, we found that 83 percent of shoppers will begin shopping prior to Black Friday, and over a third have already started. The threat of another surge could inspire more people to shop before cases peak. At this point, it’s often unclear when restock may be coming. Many suppliers are based in countries that have less than 4 percent of their population vaccinated, such as Vietnam, leaving factories vulnerable to surges and shutdowns.
Retailers should both get ahead of these shortages and adjust their promotions accordingly. What good will bringing in more consumers do if the product they want isn’t on the shelves? Companies that normally offer a 50-percent-off promotion should consider lowering it to 30 or 40 percent. Additional profitability can help make up a possible shortfall in sales driven by supply chain bottlenecks. And the slightly higher prices likely will be unrealized by consumers seeking hard-to-get items.
A retailer that runs into a shortage on a trendy item should find a creative way to “save the sale.” The retailer could offer free shipping on the item down the road when it is received, check inventory at other stores and leverage ecommerce capabilities. Gift cards are an excellent alternative to store-bought items; more than 30 percent of respondents in our survey intended to purchase gift cards as holiday gifts.
Store allocation strategies should be adjusted to hold more product upstream in distribution centers, with an approach of shipping back small shipments to sales more frequently. Retailers shouldn’t meet all the needs that they believe their stores might have at once. Remember: once a product has left the distribution center for the store, it's expensive to bring back and might end up trapped in the store if there is another shutdown of malls.
This isn’t what retailers—or really, anyone—wants to hear, but going back to mid-2020 approaches might be smart given the current uncertainty. At that point, when the pandemic future was least certain, retailers developed omnichannel measures like curbside pickup, ship from store and BOPIS (buy online, pick up in store).
The Consumer Sentiment Index fell by 13.4 percent in August (something that hadn’t happened since the 1970s) and showed little improvement in September. Based on current consumer concerns, retailers should focus on health and safety protocols (something they’d been lax about in recent months). Doing so will be necessary to make consumers confident to return to stores—which will be key for retailers working to weather another uncertain holiday season.