As multi-industry supply chain management teams enter the all-important final quarter of 2019, all hands turn toward satisfying or exceeding holiday fulfillment sales growth while meeting expected line-of-business margin and profitability metrics. As was the case last year, a lot of uncertainty and added risks present themselves across channels and markets, tasking various Sales and Operations (S&OP) and supply chain planning teams with needs for agile, responsive and risk-aware decision-making over the coming twelve weeks.
A Brief Look-Back at 2018
From a customer demand perspective, last year’s holiday fulfillment quarter kicked-off to a roaring start with record retail sales between the Thanksgiving and Cyber Monday holiday weekends with retail sales reportedly increasing over 26 percent. Sales activities moderated in early December and surged in the final days prior to the Christmas holiday. When all the data was complied, some clear trends became understood:
Entering the 2018 holiday quarter consumer confidence was noted as strong and holiday retail sales forecasts were rather positive. The National Retail Federation (NRF) had forecasted 2018 holiday retail sales for the November thru December 2018 time period to increase in the range of 4.3 to 4.8 percent. When all the actual total sales data was netted, including that of customer returns, the actual growth number was 2.2 percent. The period was dominated by an extended U.S. Government shutdown affecting a significant amount of government employees which dampened overall tendencies for consumers to splurge. Overall shipment volumes were reported as relatively high, calling into question whether customer returns were indeed much higher.
Amazon.com again turned out to be the most dominant spoiler in online sales growth, but many top retailers scored double-digit gains in online retail sales and volume numbers including Walmart and Target. Traditional retailers finally figured out the formula for capturing the interest of online shoppers which was click and pick-up in-store and free shipping on the majority of available online products. However, large diversified retailers such as Macys were not able to enable all of the needed changes.
On the supply network side, the then threatened imposition of select import tariffs on products imported from China caused retailers to front-end inventory procurement earlier than prior holiday quarters. Retailer inventories were significantly large during the quarter, and forecasts of what consumers would buy, had to be accurate. That led to early and aggressive retail promotional activity throughout the many holiday shopping holidays, but especially the pre-Thanksgiving, Black Friday and Cyber Monday holiday promotional periods.
Forecasted 2019 Holiday Sales
In September, Deloitte took a bullish view of this year’s expected holiday sales, forecasting a sales increase of between 4 percent and 4.5 percent in overall retail sales. That compared to a reported 3.1 percent actual retail sales in the same period a year ago. Online and E-commerce sales are forecasted to grow 14 to 18 percent in a range of $144 to $149 billion compared to $126 billion reported in the year earlier period. Regarding consumer sentiment, Deloitte cites near record low unemployment rates elevating holiday spend expectations.
Last week, the NRF issued its holiday sales forecast, calling for holiday retail sales forecasts to increase between 3.8 to 4.2 percent over 2018 levels to totals ranging from $728 billion to just below $730 billion. NRF further anticipates online sales and other non-store sales to increase between 11 to 14 percent or between $162.6 billion and $166.9 billion.
The retailer industry group took on a cautious view of consumer sentiment and pointed to:
“…considerable uncertainty around issues including trade, interest rates, global risk factors and political rhetoric. Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by continued deterioration of these and other variables.”
Despite such cautions, seasonal hiring among U.S. retailers is expected to grow to seasonal hiring of between 530,000 and 590,000 temporary seasonal workers, compared to 554,000 in 2018.
Keep in-mind that the challenge in retail sales forecasting is always about the underlying segment data included. In other words, it not an apples to apples comparison and requires proper context.
Another area to watch will be consumer sentiments in China, specifically whether the November Singles Day shopping holiday again breaks revenue and total global online shipment volume records. Overall consumer sentiment across China reflected by automotive and luxury good sales have been muted throughout the year, as overall economic growth declines, and the effects of the trade war with the U.S. takes a toll on manufacturing and supplier employment. That stated, Singles Day has always been promoted as a personal holiday, one that the average consumer saves for throughout the year. The event will serve as an important early indicator for global supply chain management teams.
A further area of caution is that of the Eurozone, where manufacturing and supply chain activity levels have reached contraction levels seen during the last global recession, and where the very real threat of a hard exit of Great Britain from the EU now looms very large. That places added caution and focus on anticipated holiday sales or unsold inventories, not to mention significant transportation related disruption.
In the area of online demand, 2019 will be another test of the scalability of online retailer shopping sites. Last year featured system snafus or service interruptions impacting J. Crew, Lowes Home Improvement and Lululemon, among others. A retailer to watch is Target, which has suffered two in-store systems wide outages already this year.
Holiday Inventory and Supply Network Support
This year, retailers and suppliers have added challenges related to the impact of tariffs as a new tranche of import tariffs from China are scheduled to go into effect at various points during the quarter. Different from last year, many of this year’s import tariffs affect more end consumer products.
Supply chain management and procurement teams have been scrambling to secure needed inventories prior to the imposition of tariffs. While certain manufacturers such as Apple with political influence, have managed to gain exemptions for both component imports and product exports, other manufacturers have not.
Once again, S&OP , supply chain management, sales and merchandizing teams will again be tasked with assuring that on-hand inventories are sold, since economic forecasts for 2020 point to a looming potential for recession sometime by the second half of the year. There will likely be financial penalties for carrying over excessive inventories into the new calendar year. The ability for being able to rely on last minute air replenishment for hot than expected sales on certain products may well be hampered by overall cutbacks in carrier airlift capacities or by airfreight pilot work slowdowns because of built-up labor contract negotiation frustrations.
Parcel and Product Transportation Networks
This year promises new dynamics for logistics and transportation networks supporting holiday surge fulfillment. This will be the year that tests same day or one day customer fulfillment.
Amazon.com has once again aggressively invested in overall online customer fulfillment logistics and last-mile delivery capabilities, more so than in 2018 in order to be prepared to follow-thru on one-day Prime shopper delivery. Now that FedEx has opted a complete divorce in supporting any of Amazon’s supplementary air and ground surge transport and delivery needs, Amazon will have to turn to remaining carriers to pick-up that slack. Contracting added surge needs to the U.S. Postal Service may be a political football, given President Trump’s rage toward Amazon.
On the flip side, FedEx has sought out relationships with other online retailers to help them differentiate their online delivery capabilities and meet that of Amazon. Retailers and businesses will get to observe how that works out.
UPS may turn out to be catbird in 2019, depending how much capacity is diverted to assist Amazon or other online retailers.
This year will be another test for white-glove or specialty goods delivery firms, some of which are extensions of exiting transportation carriers or third-party logistics firms. Some of these specialists have since dropped out of this segment, finding it either too expensive or too complex to service such needs. Depending how online consumers add bulk goods such as furniture and appliances to their holiday buying needs, the added tests for such existing networks. We anticipate added fallout after the dust settles.
Finally, another area to monitor this year is consumer tendencies to add to online ordering and same-day pick-up at local food outlet, holiday food shopping. That will have special significance to the pre-Thanksgiving and Christmas holiday periods if consumers elect to avoid lines at cash registers to lines at store parking lots.
The takeaway for readers is that more so in previous years, the 2019 holiday fulfillment surge period promises to provide added challenges for many businesses and their associated fulfillment networks. It will test the abilities of Cloud-based advanced technologies to provide important consumer knowledge and insights, and to provide early warning to bottlenecks and inventory warning signs.
Buckle up those seat belts and prepare for another more dynamic 12-week ride.
The Supply Chain Matters blog will again feature periodic updates, added insights and commentary regarding holiday surge events.
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