Are Fashion Retailers Ready for the Holiday Shipageddon?
“One holiday item is already sold out: shipping capacity.” The Wall Street Journal
I am packing soon to go back to Brazil for the holiday season, to spend Christmas and New Year’s Eve with my family. Since I am going soon, I started buying Christmas presents to bring home. Usually, I prefer to shop brick & mortar, go from store to store, and touch things to choose the best gift. This year, however, with the lockdown back in France, I had to get presents for my family online — and I am definitely not the only one that is making that change during 2020’s holiday sales season.
November is here and so is the start of 2020’s holiday sales season. People are starting to shop Christmas presents for their loved ones, but like everything in 2020, there’s a twist. With the Covid-19 pandemic still on — even bringing full lockdowns back in many countries — customers will go to e-commerce more than ever to buy their Christmas presents. The result? A phenomenon that is being called the holiday shipageddon: there will be more packages than means to deliver them. And that’s what I will talk about this week.
What Exactly Is the Holiday Shipageddon?
First things first. Just want to make it clear that this article is mostly focusing on the West. The holiday season is less relevant to most Eastern countries, or even irrelevant for some. On top of that, many Asian countries already had an extremely strong online shopping culture before the pandemic, which means they already have an advanced infrastructure for e-commerce delivery. So some of the problems we will talk about here do not apply to these most Eastern countries. Ok, with this out of the way, I guess we can start now.
The holiday season is the most important sales season for fashion in the West. In the US, this season represents around 20% of annual retail sales each year. In the UK, shoppers usually spend around £50 billion on goods other than food from mid-November to December. For fashion retailers in the UK, Christmas represents one-fifth of their annual sales, according to Helen Dickinson, chief executive of the British Retail Consortium.
This year’s holiday sales will probably be weaker than usual. A survey from the consulting firm PricewaterhouseCoopers LLP showed that 40% of shoppers in the US plan to spend less this year than last. But the thing is that this year is extremely unpredictable. Deloitte released two holiday sales predictions, trying to forecast two different scenarios depending on the strength of the economy and consumer confidence. The first is the low end, predicting a 0% to 1% sales increase, while the high end forecasted a 2.5% to 3.5% sales increase. The US National Retail Federation delayed the release of its holiday forecast for the first time in decades due to the lack of clear economic indicators and other unpredictable factors, such as the presidential election and a possible second wave of Covid-19 cases. Therefore, as much as this year’s holiday shopping season will probably be weaker, we are living in such unpredictable times that it is impossible to affirm how much weaker it will be. On top of that, even if customers shop less at the end of this year, the holiday season is still a massive peak in sales.
I guess you got the message, the holiday season is what defines if some companies grew or not in a year and many retailers depend on the revenues of this one month and a half. With these data, you can also imagine the number of products that are purchased during this season right? Well, the thing is that usually these sales are divided into some things brought in stores and others on e-commerce. Now, we all know Covid-19 changed everything and people are buying way more online this year due to the lockdown measures. According to Deloitte, this shift to online shopping is staying for Christmas. So far, companies managed to adapt to this new consumer behaviour, but can they keep that during the highest sales season that is predicted to break records in online sales?
FedEx and UPS don’t think so. According to The Wall Street Journal, both companies already warned retailers and shippers that they have already reached most of their capacity in 2020 and they may not be able to keep up with the demand during the holiday season. Still, delivery carriers have been trying to prepare themselves for this unprecedented holiday shopping season, by investing in automated facilities, expanding ground coverage, and other measures.
All this preparation is so these companies are as ready as they can for what is set to be the record number of holiday shopping deliveries. But delivery companies still stated that they probably won’t be able to keep up with the demand. The US DHL e-commerce division even stopped taking new customers in August instead of the usual October. There is no more time to prepare for the peak of holiday sales. Increasing delivery capacity is often a multiyear planning process, but 2020 did not give carriers much time to plan.
“Everybody’s in the market looking for more capacity. With minimal exceptions, nobody is finding it,” said Tim Geiken, principal at Platinum Circle Partners LLC, a logistics consulting firm.
Amazon may be one of these few exceptions, since the company stated it is confident it will be able to serve customers during the holiday season. The American tech giant spent billions of dollars to add to its capacity this year such as fulfillment centers closer to its customers. We will see about that, but still, as consumers, it may be a good idea to hear the warning of an executive from FedEx:
“If you’re shopping out there, we really encourage you to shop and ship early and really that means now.” Crazy right? By the way, this quote is from mid-October. Feeling late to shop already?
To get into numbers, delivery services are expecting a potential shortfall of as many as 7.2 million packages a day. That means 7.2 million packages a day could face delays, which is a big problem once Christmas gifts have a due date. The question is: how many people would cancel or return orders that did not arrive on time for Christmas? We do not have an answer yet, but probably, if products don’t arrive before the 24th of December, many consumers may decide to return items more than usual. That means fewer sales and as we saw at the beginning of this article, many fashion retailers depend on holiday sales. Losing these sales can be a serious financial problem for some companies, especially after the terrible year the fashion industry had. They never needed holiday sales as much as they do now.
Carriers and shippers spend months preparing for the holiday seasons, trying to forecast the demand they will need to fill. Well, all this data I brought to you is from before many European countries announced a second lockdown, which was quite unexpected in some countries. Now UK, France, Germany, and other nations have implemented new strict lockdown measures, closing non-essential businesses during the most important season for fashion sales in the region.
It is still unclear for how long these lockdown measures will be in effect, we just know they won’t be over in November. Without stores opening during the whole month of November and with a chance of entering December with the same scenario, consumers won’t have many other choices than to do their holiday shopping online. Therefore, all these numbers we just analysed are probably higher by now, and most companies are definitely not ready for it. As Helen Dickinson, the CEO of the British Retail Consortium, explained to the Business of Fashion:
“The previous lockdown cost non-essential shops £1.6 billion a week in lost sales; now we are entering the all-important Christmas shopping period, these losses are certain to be much bigger.”
Losses will be bigger, and so will be e-commerce demand. For fashion retailers in these countries that are back to lockdown, the scenario is extremely pessimistic. Even before the new lockdown, many retailers’ online capacity was already stretched, which means that they won’t necessarily be able to make up for lost in-store sales via e-commerce. Simon Wolfson, chief executive of the high street fashion retailer Next Plc, stated that just a two-week shutdown in November in England, Northern Ireland, and Scotland would reduce the clothing retailer’s sales by about £57 million, once they don’t have the delivery capacity to transfer all brick and mortar demand to e-commerce.
Another impact the shipageddon is having on the fashion industry is the shipping costs. Once carriers are operating in their full capacity, they can be pickier about whom they want to do business with and how much they will charge for their services. Thus, the pricing power that was once with retailers and shippers has now shifted to carriers, resulting in higher shipping costs. These higher prices for shipping also include the last-minute increase in delivery capacity (implementing automated technology, hiring more staff, and etc.) and the protective equipment due to the Covid-19 pandemic.
How Are Retailers Trying to Solve the Shipping Problem?
Besides investing billions in increasing delivery capacity, fashion retailers are trying to expand the holiday season. Prime Day, Amazon’s “Black Friday”, opened the holiday shopping season in mid-October. Normally, it would only start in mid-November. This move from Amazon had a pretty obvious strategy behind it: spreading more holiday sales. Like that, instead of having the delivery peak only in November and December, it distributed the holiday shopping in October too. I guess I can make a very convenient comparison here. We had to lockdown to flatten the curve of the Covid-19 virus infections so hospitals could treat people that had to be treated. If everyone got the virus at the same time, hospitals wouldn’t have the infrastructure and staff to treat everyone. That’s exactly what Amazon and now many other retailers are doing. They are trying to flatten the curve of sales to keep it under their capacity for shipping. If everyone buys at the same time online, they won’t have the infrastructure and staff to deliver to everyone.
Amazon says it is working for them because they swear they will be able to keep up with demand — even though the company already experienced slower deliveries this year due to higher-than-expected demand and the limitations imposed on distribution centres due to the Covid-19 pandemic. Other retailers are already saying they are not as well prepared as Amazon says it is. Those that depend on carriers such as FedEx and UPS, which, as we saw, are not ready enough for the peak of online holiday shopping, will probably have problems delivering to its customers.
This push for early holiday sales may improve the e-commerce buying experience, which is set to be messy this year. According to Amit Sharma, chief executive of Narvar, a technology firm that helps Gap Inc., Sephora, and others with shipping and tracking purchases and returns, “It’s better to take fewer orders at once but over a longer period,” than risk disappointing shoppers with delays. “This is the main concern”, he stated.
But this is also making the discounting period quite confusing. Black Friday, which use to be a day of deep discounting, is turning into a month of price reductions. Target, for example, decided to extend Black Friday’s aggressive pricing to the whole month of November. On top of that, the date of Prime Day that opened the holiday shopping season earlier took some retailers by surprise. Many did not have merchandise to discount yet, once they were planning to start it only in November. This scenario pushed some retailers to discount products they were planning to sell at a full price, impacting companies’ margins.
In countries that are not back to lockdowns, such as the US, Brazil, and Mexico, brick and mortar may be the Christmas saviour, as Steve Barr, an independent retail consultant, stated:
“Stores could be the savior. People will be able to shop and get what they want. But the flip side of that is lines and traffic flow and local health restrictions.”
Of course, there is a downside to brick and mortar during a pandemic. Even in countries where full lockdown is not back, governments are advising citizens to avoid agglomerations — unfortunately, not all governments but you get what I mean. Some retailers are promoting their pick & collect services (buying online and collecting at stores), which can take some pressure out from warehouses. In the UK, even with lockdown restarting, pick & collect in stores will remain open.
These solutions are important because e-commerce also brings risks amid a pandemic. Usually, to keep up with the demand from e-commerce shipping, warehouses increase the number of staff. This results in packed warehouses, which during a pandemic that demands social distancing is not a good idea. Louisa Hosegood, digital and strategy director at Bis Henderson Consulting, who has previously held senior logistics roles at John Lewis & Partners and Marks & Spencer, mentioned some of the unique challenges warehouses will have this year and a few possible solutions:
“It is going to be an interesting peak. Retailers usually manage Black Friday by putting as many people as is safely possible in a warehouse, and the question is how you achieve that with social distancing. Retailers could think about borrowing warehouse space to spread people out, but it is expensive. It will be about how businesses can manage those peaks — perhaps by saying to customers that if they buy something in the Sale it will take longer to be delivered, so then you don’t have to get everything out of the door the next day. It will be interesting to see how retailers use their stores, perhaps picking the stock from store and getting customers to collect from there.”
And for the countries back to full lockdowns, such as the one I am right now, good luck with the shipping demand. Fashion retailers already suffered a lot during 2020 and this second wave of Covid-19 which is imposing lockdown measures across Europe will definitely further impact sales during the most important period of the year for fashion companies. As a consumer, the way you can help your favourite fashion brands and retailers to survive this turbulent year is by doing your online holiday shopping as early as possible, so we can receive our products, hopefully not return them and keep the fashion industry economy running. As for me, I ordered my family’s Christmas presents already, I am just hoping everything arrives before I leave for Brazil.
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