[Updated post from July 29, 2021]
Peak season 2022 is fast approaching – and it’s not going to be a return to business as usual.
Even as the economy shows robust signs of recovery from COVID-19, the ripples caused by the initial pandemic response are still spreading. With inflation continuing to rise, demand for the upcoming holiday season is likely to the set beset by ‘sticker shock’ and plummeting levels of brand loyalty as consumers look to secure the best price.
And with e-commerce growth finally slowing down to pre-pandemic projections, brick and mortar stores are reaping the benefits of customers craving immersive, in-store shopping experiences. Against the current backdrop of economic uncertainty, continuing supply chain challenges, and labor constraints, both retailers and consumers alike are going to have to find ways to do more with less.
In this post, we’re investigating the three biggest logistics challenges this year – and how merchants should approach them to achieve a successful peak season in 2022.
Merchants have learned to expect peak season surcharges at this point in the pandemic – but just peak season itself, they seem to be getting earlier and earlier each year.
With the peak of the peak still yet to come, major parcel carriers have taken the step of implementing escalating surcharges toward the end of the year, with the first round from FedEx coming into effect on September 5th.
Seasonal surcharges during the 2020 holiday season were $3-4 per parcel, with 2021 seeing substantial increases for high-volume shippers. In 2022, residential deliveries appear to be a particular focus, with carriers levying additional charges to make up for this less efficient and more costly method of delivery.
Plus, it’s not just parcel carriers that brands need to be aware of. For the very first time in its history, Amazon will be implementing its own version of peak season surcharges, which it’s calling a ‘Holiday Peak Fulfillment Fee.’ With customer expectations increasing for faster e-commerce delivery, it’s not surprising that parcel carriers and fulfillment networks are turning to extra fees to maintain operational standards.
Merchants should already be crunching the numbers or working closely with their 3PL to determine the likely impact on their bottom line. It may be necessary to consider raising your shipping fees, instituting higher free shipping thresholds, or encouraging consumers to select slower shipping speeds to keep surcharges from eroding your profit margins. If your customer base is concentrated in a few key areas, regional carriers may also present a viable alternative.
At the beginning of the pandemic, retailers were quick to experience the shortcomings of the popular ‘just in time’ inventory management model, which saw businesses keep minimal inventory on hand to reduce storage costs. However, this strategy rests on freight networks continuing to run smoothly – something which fell apart spectacularly in 2020.
As a result, many brands pivoted to a ‘just in case’ inventory model to tackle unreliable shipments. By keeping larger volumes of inventory on hand to weather potential disruption, inventory levels grew by as much as 43% earlier this year. This should have set them up well for the recovery of categories such as apparel, cosmetics, and home goods. But with inflation continuing to rise and consumers cutting back on spending, retailers have found themselves grappling with an unexpected problem – too much inventory.
Big retailers such as Gap and Walmart have already found themselves in the tough position of having to discount excess inventory, while Urban Outfitters has embarked on an ambitious SKU rationalization program to cut costs. Having pulled forward their delivery dates in anticipation of longer lead times and an earlier peak season, many brands are now are risk of clashing headlong with thrifter shopping habits this holiday season.
With seasonal orders of inventory still outstanding, now is the time for brands to consider re-examining their needs and whether it’s a good idea to cut back on quantity. If there’s a lot of excess inventory still filling up your warehouse, it may be necessary to liquidate or discount SKUs to free up space for seasonal merchandise.
The so-called ‘great resignation’ is continuing in the aftermath of the pandemic, with multiple industries struggling to attract and retain workers. Thanks to their unstable and often short-term nature, seasonal retail logistics positions are some of the most vulnerable to this trend. According to the U.S. Chamber of Commerce, the retail sector has seen some of the highest churn rates on record since November 2020 at 4.5%, with some 65% of vacant positions going unfilled as of June 2022.
According to a recent LinkedIn poll by Radial, 71% of retailers say that their biggest worry for peak season 2022 is finding enough labor to support peak season activity.
And it’s not just retail that’s struggling, either. The logistics sector at large is also being impacted by the lack of ready labor. The shortfall in truck drivers reached 80,000 drivers in 2021 – and is expected to grow to 160,000 by 2030.
The reasons for these labor shortages are complex. The boom in e-commerce during 2020 and 2021 saw retailers and 3PLs embark on rapid scaling to meet consumer demand. Even though growth has now slowed, it remains far above pre-pandemic projections. This has resulted in intense competition for workers, especially with COVID-19 continuing to fuel staff absences. Plus, changing attitudes toward work-life balance are now seeing more people pursuing meaningful work, with many retail and logistics roles viewed as less attractive than they once were.
While seasonal hiring strategies don’t usually begin until later in the year, now is the time to begin assessing your needs and advertising for roles. By getting started before your competitors do, you’ll be much better positioned to fill roles and get your new staff up to speed for a busy holiday season.
If you’re planning on partnering with a 3PL for the holiday season, be sure to look for providers who use automation to aid scalability and lessen their reliance on seasonal labor. This will allow you to capitalize much more readily on sales opportunities and avoid delays in order processing and shipping.
The retail and logistics sectors have had to weather immense obstacles over the past couple of years, and 2022 is no exception as the world continues to grapple with the ongoing effects of COVID-19. Yet each of these challenges also presents opportunities to merchants who can problem-solve effectively and find new ways to keep their inventory moving. Do this well, and you’ll have a competitive advantage heading into 2023 and beyond.