Retail Industry Update
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As domestic and Asian logistics challenges will lead to reduced product ranges and discounts during the holiday season, British retailers will be rationed for Christmas cheers this year.
Supply issues in food distribution have dominated the headlines in recent weeks, but non-food retailers have encountered similar setbacks in planning and inventory during the busiest period of the year.
“I have never seen this in more than 40 years of toy sales,” said Gary Grant, founder and executive chairman of The Entertainer, which operates more than 170 toy stores in the UK.
He cited commodity inflation, high transportation costs, container procurement issues and limited factory capacity.
Problems in some major container ports in China during the summer and the blockage of the Suez Canal earlier this year caused bottlenecks. Grant said: “The factories in China are blocked, so they only produce what they have ordered.”
An executive at a large retailer stated that his company “is working with suppliers to get the best things they have, even if they are not always what we ideally want.”
He said: “The irony is that the period after the pandemic is more challenging than a full-blown pandemic.” “We are about eight weeks behind. [in terms of Christmas stock build] at this moment. Of course, there is a safety margin, but if there is further interruption, there is not much slack. “
Grant also stated that his company is about 10% behind in terms of the number of containers received.
Due to the reduced capacity of passenger flights and the recent additional Covid-related preventive measures taken at many airports in China, which reduced productivity and increased costs, even air freight was far from smooth.
Toys are one of the most affected categories, along with bicycles and large household items. Consumer electronics products, where transportation accounts for a small proportion of the total cost, are less affected by freight issues, but are affected by the shortage of semiconductor chips.
Executives at the major retailer said it had leased air freighters to ship some products to the UK. “Obviously, we don’t want to do this often.”
Ikea said this week that it will transfer some of its furniture to Europe onto trains to ease transportation restrictions.
Although there is no shortage of shipping containers as a whole, freight rates are still high, and containers are often stranded in the wrong place. Once they arrive in the UK, another problem is that there are too few truck drivers to move them.
Dan Myers, managing director of XPO Logistics’ UK and Irish transport department, warned that unless the government changes its mind and no longer accepts more EU drivers, retailers will face a “difficult” Christmas.
So far, the ministers have rejected the proposal of many in the retail, hotel and logistics industries to include truck drivers on the list of shortage occupations, which will allow non-British nationals to work here and ease an estimated 100,000 driver shortage.
Myers said: “Retailers are already rationalizing some scope and reducing delivery frequency.” “Some people are changing their historic peak schedule to smooth and extend it.
“This will make it a difficult Christmas building. This will affect usability.”
Andrew Oppi, head of food and sustainability at the British Retail Association, stated that retailers are “taking all necessary measures to mitigate possible disruptions”, including increasing the wages of drivers and “delivering non-perishable goods earlier or through alternative routes to Avoid rushing to ship the last one minute.”
Some retailers said that the scope may be smaller and the discounts will not be so aggressive. “Black Friday looks very similar to previous years, but the selection of individual brands or products may be narrower,” said an executive at this major retailer.
“We will also review our promotions and think twice, otherwise it may cause inventory supply problems.”
Even retailers that do not rely heavily on Christmas transactions, such as DIY group Kingfisher, are worried about the prospects for next year, as transportation problems in particular may last until the Chinese New Year in early February.
“We managed the supply and demand in the summer and we have now passed the peak period. Our top priority now is to prepare for next year and the next peak season,” the organization said.