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Christmas is coming - is your stock?

06 December, 2021

Miles Lethbridge

Director, PwC United Kingdom

+44 (0)7483 391364

Email

"Christmas gets earlier every year."

Often little more than a well-worn trope, this year it really will be early. Our recent Festive Predictions report shows 21% of us are looking to shop earlier than usual, driven by concerns over stock levels, delivery times and possible further impacts of COVID-19, as well as a determination to make this year special.

That will have a big impact - and put significant strain - on the global supply chain, particularly as it continues to adjust to the challenges brought about by the pandemic.

A self-fulfilling prophecy?

Supply chains are most successful when they predict consumer behaviours correctly. In recent years, trust in supply chain resilience and home delivery has pushed more volume closer to Christmas, with carriers (and consumers) having growing confidence in their ability to deliver increasingly closer to the big day.

Unexpected changes to consumer behaviour this year will put extra stress on supply chains more familiar with a later Christmas shopping season. Amplified by the media, this pressure filters into the consumer consciousness, who then look to buy early to ensure they can get everything they need.

But that anxiety can become a self-fulfilling prophecy: worried consumers buy early to avoid stock-outs from an unprepared supply chain, but inadvertently cause more panic and demand at a time when it’s not ready for that level of volume.

Retailers may struggle to alleviate the pressures this year. But to avoid the same situation next year or at other peak trading times - if this becomes a longer-term trend - they may need to revise how they forecast, plan even earlier in advance, or hold additional stock in the future.

Another worker shortage?

A significant risk in the Christmas supply chain this year could be the availability of labour. While driver shortages have been well-publicised in the media for months, we’re also seeing a shortage of warehouse workers.

For retailers, the only short-term solution to increase headcount and manage through the Christmas period could be to attract extra workers through greater pay. But this cannot be a permanent solution - it will push up costs, drive down margin and bottom line and build inflation.

In the longer term, this shortage of warehouse staff is likely to drive more investment in automation in warehouses, technology and more efficient engineering. But with a significant lead time, this isn’t a solution for this Golden Quarter. However, retailers that have previously invested in automation may find this particular challenge easier to navigate this year.

Sustainable supply chains in the New Year?

A trend developing around the supply chain - and on the back of COP26 - is the increasing focus on ESG in a product’s lifecycle and the impact of our activity as consumers. Interestingly, this is unlikely to have too great an impact on how we shop for Christmas this year. But there will certainly be a greater focus post-Christmas on the cost and impact of returns and ways that we can reduce the impact of our consumerism.

Supply chain problems beyond Golden Quarter 2021?

As the global supply chain continues to recover from the shocks caused by COVID-19, the next challenge will be the Chinese New Year in February 2022.

With almost all factories and manufacturers in China closed for at least a week - and productivity often reduced for several - everyone is desperate to see how quickly the global supply chain can return to normal after the holiday.

It will be fascinating to see how the situation develops, with some retailers already looking to Christmas 2022.

With many parts of the supply chain still in the wrong place after COVID-19, it is difficult to see who will step up to fix it. While shipping lines may have traditionally been expected to alleviate the challenges, with container prices rocketing from £3,000 to £20,000 in just a year. There is little incentive for them to dilute profits by adding capacity, so shipping prices are likely to stay as they are for some time.

“Global supply chain issues are unlikely to be resolved easily. For many businesses, there will be some huge decisions to be made early next year.”

Do you need a new operating model? Do you change suppliers? Will you pass on costs to the consumer? Can you look at on-shoring production? Do you move your supply chain closer? Do you charter your own ships?

For all retailers, it does mean one thing: understanding and addressing your supply chain must be top of your agenda, as soon as possible.

Miles Lethbridge

Director, PwC United Kingdom

+44 (0)7483 391364

Email

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