The National Retail Federation is forecasting that U.S. retail sales for 2019 will increase between 3.9 percent and 4.4 percent despite some economic cautions. Retail industry customer fulfillment and supply chain management teams should likely be preparing for another active year but with contingency planning in-place.

This week, the NRF issued its initial annual forecast for anticipated U.S. retail sales. Stating a belief that the underlying foundations of the U.S. economy remain sound, NRF CEO Matthew Shay struck a positive tone regarding retail in the coming year. His caution was that retail would continue to be strong absent “economic self-inflicted wounds” such as increased tariffs, trade tensions or government induced shutdowns.

With 2018 retail sales expected to be officially recorded by the U.S. Commerce Department in the vicinity of 4.6 percent, the 2019 forecast bandwidth of between 3.9 percent and 4.4 percent is slightly lower, but none the less indicative of a continued upturn in retail. The NRF further indicated that online and non-store retail sales grew by 10.4 percent last year to a value of $682.8 billion. That online growth number should be taken in proper context in that preliminary data from agencies such as Mastercard data had indicated that online sales grew 19.1 percent during the two month, November to December period. For retail industry sales and operations planning teams, online estimates tend to be an apples to apples comparison of specific channels, and specific time-periods. Online sales in any given period have to be reconciled to customer returns, which are often at double-digit percentage volumes.

Beyond the growth percentage reconciliation, the obvious trending points to ever increasing online shopping experiences and customer fulfillment. For the industry’s S&OP and supply chain management teams, planning for 2019 is already underway.

One of the more important challenges will be the planning of inventory purchases over the coming months. Retail teams were fairly adroit in pushing-forward holiday season inventory purchases to avoid the imposition of U.S. tariffs on certain products that went into effect at the latter stages of 2018. The end-result was warehouses packed with inventory, and for the most part, a rather successful holiday performance from revenue and profitability perspectives. Now, tougher decisions are ahead.

The threat of a new, and wider scope impact of tariffs on consumer goods looms on March 1st if U.S. and Chinese negotiators cannot come to agreement. Spring and summer inventory decisions will have to be determined based on various scenarios related to existing inventory, the state of existing sourcing, or any plans for additional international or domestic sourcing. Some retailers are seeking price concessions from Chinese based suppliers, likely with mixed results.

For globally based omni-channel retailers, some retail market forecasts are likely to be more muted. As an example, retailers across the United Kingdom experience their worst Christmas season in a decade primarily driven by consumer confidence and the threat of Brexit. Price discounting did nor help. There are mixed viewpoints on this year’s retail growth across China given the ongoing economic slowdown. Online retailer Alibaba is optimistic about consumer spending in certain categories while other retailers like Apple have experienced a different experience.  A lot will depend of solid customer intelligence, merchandising and inventory management.

Investments on enhanced online customer fulfillment, higher levels of end-to-end supply chain supply network visibility and multi-channel consolidated inventory management  paid dividends for some retailers last year.  Others will need to similarly invest.

Logistics capabilities loom large, including buffering the explosion of rising surface transportation costs that occurred last year. Decisions related to either continued contracting with third-party logistics or taking on more in-house transportation management utilizing today’s more sophisticated auto brokering and load matching capabilities are yet a further consideration. So are investments in enhanced productivity such as in-store and fulfillment center robotics.

The prime takeaway from 2018 was that retailers who were able to plan well, invest in needed advanced supply chain management supply and demand network process capabilities performed well in the new model of Omni-channel retail.

Planning for 2019, from our lens, takes on a similar perspective.

Be prepared and think bold.

 

Bob Ferrari

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