Consultant Insight: A positive holiday season, but some problems will continue into 2022

The 2021 holiday season was a busy one with total retail sales increasing 6.9% year over year and e-commerce sales increasing 13.5% YOY, according to Mastercard SpendingPulse. However, while inventory issues hurt some retailers, a repeat of the last-mile delays that plagued the 2020 holiday season did not materialize. Retailers warned early of potential inventory shortages and encouraged consumers to shop early. "Shopping early, shopping now, definitely is critical. We will be low in inventory by the time Christmas comes around," L.L. Bean CEO Stephen Smith said in November . The latest inventory data from the U.S. Census Bureau finds that retail inventories were not able to keep up with retail sales at the beginning of the holiday season. In fact, seasonally unadjusted retail inventories increased 3.3% from September to October while retail sales increased 4.3%. Meanwhile, retail inventories declined 0.6% YOY while retail sales increased 8.2%. [caption id="attachment_69752" align="alignright" width="428"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] One example is Retailer Bed, Bath & Beyond, whose earnings for the quarter ending Nov. 27 were negatively impacted due to low inventory. "The customer experience was compromised as strong demand wasn't met with strong product availability,” CEO Mark Tritton told analysts during the company’s Jan. 6 quarterly earnings report. “This resulted in approximately $100 million in lost sales versus the demand, or a mid-single-digit impact of the quarter and an even higher impact on December." Meanwhile supply chains continue to experience capacity constraints from Asian manufacturing facilities through to last-mile deliveries. The delays are common as staffing issues, COVID-19 infections and other concerns have impacted supply chains for more than a year. While on-time performance for the three national last-mile carriers, FedEx, UPS and the USPS, were much improved compared to the 2020 holiday season, this came at a higher price. Since June 2021, FedEx Ground has added 14.4 million square feet to its network. During the second quarter alone, which ended Nov. 30, it brought 24 major expansion projects online, with nine starting operations in November. Staffing has also been a problem for FedEx. During the company's Dec. 16 earnings call, FedEx President Raj Subramaniam noted that FedEx had found it necessary to recruit, an effort that brought in more than "111,000 applications, the highest level in FedEx history” which led to the company hiring more than 60,000 frontline team members since September. The increased number of applications were due to wage increases and additional benefits to attract new workers. However, not addressed during FedEx's call was the need for more FedEx Ground drivers. News clips from Alabama and North Carolina showed FedEx Ground packages dumped in wooded areas instead of correctly delivered throughout the holiday season. While no reason was given as to why the packages were dumped, it is a concern FedEx must address. These drivers' recruitment, training and employment, however, are managed by FedEx Ground route owners, not FedEx. There are driver openings around the U.S. with starting pay averaging $15 per hour and the opportunity to earn bonuses. To make up for driver shortages, FedEx Express drivers, who are FedEx employees, have delivered Ground packages as needed. While this integration is smart, it is also costly since FedEx Express drivers typically earn more than FedEx Ground drivers. Despite the staffing shortages, FedEx not only survived the holiday season but emerged strong. FedEx Ground had an outstanding Cyber Week with 100 million packages picked up during the first official week of peak. USPS also seemed to have a successful holiday season as it added 40,000 seasonal hires, installed 112 new package-sorting machines and leased 13 million square feet of additional space at more than 100 locations to deal with an ongoing surge in packages. As we enter 2022, retailers' inventories will remain a concern as long as retail sales remain strong. Year to date through November 2021, retail sales were up 18.3% YoY. However, staffing in retail stores and across the supply chain will also be a concern that results in some retailers reducing store hours and raising wages and increasing benefits to attract workers.

Consultant Insight: A positive holiday season, but some problems will continue into 2022

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