This weekend marks the official kickoff of the 2018 holiday customer fulfillment surge period which will once again test months of planning and investment in various people, process and technology deployment areas to manage expected high shipment volumes.
China
On Sunday, the Singles Day holiday shopping event will again test the ability of online shopping providers Alibaba, JD.com and others in establishing yet another global record in single day fulfillment, online mobile payments and logistics volume. Both online retailers have invested additional billions in advanced inventory management, automated fulfillment, customer intelligence and advanced analytics capabilities to be able to manage anticipated volumes and quickly respond to any bottlenecks. 
Last year, Alibaba’s Singles’ Day revenues surpassed $25 billion, exceeding that of both Black Friday and Cyber Monday sales combined. Shipping volumes represented a 39 percent increase from 2016 activity with overall 2017 Singles Day order volume numbers for Alibaba alone reported as 812 million, up 23 percent from the prior year.
Keep in-mind that the holiday is technically a one-day shopping event with the country-wide logistics capabilities stressed to mind-boggling proportions.
United States and Other Countries
A strong economy, nearly full employment and high consumer confidence are expected to fuel 2018 holiday retail sales to record levels. The National Retail Federation (NRF) is forecasting November-December holiday sales of upwards of $720 billion, an increase of nearly 5 percent from 2017 levels. Adobe is predicts that U.S. online sales will increase 14.8 percent, totaling $124.1 billion, while 
offline retail spending is expected to increase a modest 2.7 percent. A favorable holiday focused calendar allows for 32 shopping days between the Thanksgiving and Christmas holidays.
In Europe, consumers are a bit less optimistic given uncertainties in overall economic growth, a looming potential for a hard Brexit, and ongoing political and economic concerns related to Italy, Germany and some other countries.
For the past two years, the two largest online shopping days in terms of volume and sales have been both the Black Friday and Cyber Monday shopping holidays. That is expected to continue this year. There have further been multiple additional days of online buying activity exceeding $1 billion.
Large retailers are already positioning to garner larger shares of both online and in-store wallets. Amazon is offering free shipping on all orders delivered through Christmas regardless of whether customers are members of the Amazon Prime program. Target had previously started the ball rolling with its free two-day shipping announcement on many items with no minimum order size. Walmart has elected to add millions of third-party marketplace items to its two-day free shipping offer but will require a minimum purchase of $35. For the first time, Kohls retail stores will serve as both a shopping destination and physical delivery and pick-up point for rival Amazon.
In the food and grocery retail domain, this year can well represent the first significant test of online food retail fulfillment. Whole Foods Market, now under the ownership of Amazon, continues to rollout Amazon Prime Now pickup and deliver capabilities across the U.S. Curbside pickup is now offered in 22 markets. Prime Now members can reportedly shop thousands of items for curbside pickup without leaving their car. The nation’s largest supermarket chain Kroger has been gearing-up to hire and deploy an additional 10,000 employees to support holiday sales volumes, while general retailers Target and Walmart are planning for increased online orders for holiday food needs.
Supply Chain Planning and Execution
With the building threat of added tariffs and increased trade tensions involving China and the United States, retail supply management teams elected to secure holiday inventory much earlier than previous periods in order to avoid added tariffs. Thus, entering the fulfillment period, warehouses and stores are packed to the rafters with inventory, and merchandise promotions will likely be targeted at moving as much inventory as-possible. A unique challenge in 2018 is that much of current inventory is at lower landed cost than any future replenishment inventory subject to added tariffs. That will make for tough replenishment or stocking decisions. Consumers may well discover that the most market in-demand items will not be replenished for holiday delivery.
The 2018 holiday period will be a further test of multi-channel inventory management, the ability to consolidate and management inventories to service multi-channel customer fulfillment demands.
This will be a year where end-to-end supply network visibility and more leveraged use of mobile-based systems and applications access will pay added dividends.
Customer Focused Logistics and Transportation
As with prior holiday periods, traditional parcel carriers FedEx and UPS are again attempting to hire thousands of additional seasonal workers for both customer logistics and parcel delivery needs. With U.S. unemployment levels falling to a 50 year low of 3.7 percent in September, recruiting these additional part-time employees will be especially challenging. Amazon also plans to hire a considerable number of seasonal workers with added concentration for augmented drivers for branded Amazon Prime delivery vans operated by independent contractors.
Retailers will bear the burden of added rate increases for parcel and specialized goods delivery while the nationwide logistics networks of FedEx, UPS and other carriers will again be tested for their weakest links or volume bottlenecks. Consumers will discover once again that expected delivery date may be a changing in-transit determinant.
The United States Postal Service may be the victim or benefactor of a shortage of seasonal workers. Victim in that Amazon has already assumed more of its own last-mile delivery capabilities. Benefactor in that some retailers may turn to the USPS to avoid higher parcel delivery rates of commercial carriers.
Both UPS and Amazon are both starting the holiday period managing disruption in operations.
A deadly tornado damaged an Amazon fulfillment facility near Baltimore last week, killing two workers. The storm blew-off sections of the roof structure and caused a concrete wall to collapse. Amazon is in the process of initiating contingency planning to deal with the effects of a center that may be offline for several weeks.
UPS has been warning customers all of this week that it will halt pickups related to UPS Freight as early as today, because of a potential labor strike involving 11,000 union workers. The move was initiated to minimize disruption to freight that might have been in-transit prior to a work stoppage. The carrier’s freight segment accounts for roughly 5 percent of overall revenues. While a new five-year labor contract with 250,000 parcel delivery workers was declared ratified in October by officials of the Teamsters Union, union members in some chapters had not totally voted for ratification. That could lead to some sympathy with a presence of striking freight workers or the potential for operational slowdowns in the coming weeks.
Individual Retailer and Supplier Challenges
Once again, certain retailers or suppliers enter this year’s holiday surge with individual challenges.
Retail icon Sears has entered bankruptcy status and has secured financing for remaining stores to stay open through the holiday period. Major supplier Whirlpool has demanded that that Sears return all inventory shipped to the retailer 45 days prior to bankruptcy filing. Other suppliers are likely taking similar actions.
Furniture and home goods online retailer Wayfair reported a third quarter loss of nearly $152 million and additionally forecasted an operating loss for the current quarter. The online retailer has communicated to investors that that aggressive investing for growth and scale will lead to future profitability. While net revenue rose 42 percent in the latest quarter, the retailer is spending heavily on advertising and operating expenses including transportation costs.
Premium goods supplier Michael Kors reportedly has been unable to meet high demand for signature goods because of inventory shortages. According to the CEO, a prior strategy to reduce inventory with the expectation that more items could be sold at full price backfired and now the company is sold out in certain styles. Signature handbags branded from Coach, Tommy Hilfiger and others are apparently in high demand. The company’s CEO noted to The Wall Street Journal that the retailer will be “chasing” product throughout much of the current quarter and inventory may not return to adequate levels until post-holiday periods. As our retail focused readers are acutely aware, that is not a position any company wants to have entering the holiday surge.
This week, the WSJ also reported that declining revenues associated with Coty have been impacted by supply chain disruptions. The beauty goods supplier has had efforts underway to integrate its prior acquisition of 43 beauty brands from Procter and Gamble, which were acquired in 2016. Current challenges relate to unexpected product shortages among certain key suppliers, manufacturing disruptions as a result of the effects of Hurricane Florence, and ongoing consolidation of various inventory distribution centers.
Looking Forward
Over the coming weeks there will likely be other individual retailers and consumer product suppliers making business and media headlines as each responds to unplanned supply or demand network snafu’s or process bottlenecks. On the one hand, the age-old adage that a chain or a network is only as a strong as its weakest link holds especially true with each holiday period test. On the other, organizations who have made the right investments in people, business process and supporting technology will fare well and be rewarded with improved business outcomes.
As in prior holiday periods, Supply Chain Matters will be highlighting developments, insights and learnings both in the coming weeks and in post-holiday assessments.
Stay tuned for quite a busy period.
Bob Ferrari
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
