By Forrester Sorensen, Staff Writer
For many Canadians, the holidays can be an emotional and financially stressful time. Unfortunately, as the first signs of winter reveal themselves signalling the beginning of the holiday season, it is evident that the global supply chain will be adding to people’s holiday headaches this year.
Supply Chain Issues
The disrupted international supply chain has resulted in uncharacteristically long wait times for online consumers, and unpredictable levels of inventory for retailers. In recent years, many firms from across the business environment have invested heavily in creating efficient logistical networks to avoid this exact problem. So how did we get here?
The short answer is the Covid-19 pandemic, but the specific factors contributing to the supply chain backlog are more nuanced. Firstly, manufacturing facilities initially cut production as they anticipated a drop in demand for goods during the pandemic. However, consumers diverted their spending on experiences to consumer goods during lockdowns causing an imbalance of supply and demand. Moreover, many factories that operated in less developed nations overseas such as Vietnam were the epicentre of large Covid outbreaks, further hampering production.
Additionally, the displacement of shipping containers further contributed to the current supply chain crisis. At the beginning of the pandemic, a large number of shipments of masks and other medical supplies were being exported from China to countries that typically do not have trade relations with China. As a result, shipping containers, a vital component of the supply chain, were stranded in regions like West Africa and South Asia which had few goods that required exporting, thus creating a shortage of containers elsewhere in the world.
The current dominant business mindset of having extremely efficient logistical networks also somewhat ironically contributed to this problem as well. Streamlined supply chains typically allow businesses to hold very little inventory on shelves and in warehouses which significantly reduces operating costs for most retailers. However, in this case, the lack of product on hand exacerbated the issues that arose from the clogged supply chains.
Effect on Consumers
This past weekend was American Thanksgiving, meaning that two of the busiest shopping days of the year are currently taking place – Black Friday and Cyber Monday. Though from a consumer perspective, these affairs may look a little different than in years past as inventory insecurities are creating a two-tiered event.
Large companies, like Canadian Tire for example, that possess strong, robust supply chains are expected to offer deep discounts as they would in any other normal year. Small, mid-sized, and independent retailers, on the other hand, have less capacity for large markdowns and are not expected to be able to slash prices to the same extent.
“Companies with really strong supply chains are going full bore,” states retail analyst Bruce Winder, “If you have the inventory and logistics in place, you’re not taking a chance because you know you can capture some market share this year.”
International supply chain woes are expected to permeate the Christmas shopping season as well. Deloitte’s Holiday Report revealed that growing uncertainty surrounding inventory and supply chain issues caused many Canadians, especially those who accumulated a surplus of savings during the pandemic, to start their holiday shopping earlier this year with more than one-third of those surveyed saying they plan to start shopping before November.
The widespread product shortages and logistical backlogs may have further impacts on consumer behaviour. During the pandemic, many of us became accustomed to purchasing everything from clothes to cleaning supplies to groceries all online. This is reflected by the 32.4% growth in e-commerce in the United States during 2020. However, a reversal of this trend may be on the horizon as a return to shopping in physical stores appears increasingly likely.
As Rod Sides, leader of Deloitte’s US Retail and Distribution practice put it so succinctly, “Brick-and-Mortar may become more attractive for consumers later in the season as shoppers can leave with goods in hand, versus waiting on promised dates from shippers.”
The lasting economic impacts of Covid-19 are still being felt by Canadians as this holiday shopping season will be unlike any other in recent memory. As consumers move away from online shopping due to the unreliability of global supply chains, and as small businesses are unable to compete with larger companies on inventory and price, it appears that this holiday season we may be re-entering the department store era, albeit temporarily, as consumers will choose to shop in-person, where deals can be found, and where they can leave the store with product in hand.
Ironic that Covid was supposed to be the nail in the coffin for department stores, yet here it is creating a newfound demand for them.