Flexe Hub: Retail & Supply Chain Facts and Trends

For more information, please also visit:

• COVID-19 news and information page
• An interview with Dr. Kevin Dooley, Ph.D, on supply chain resilience and risk management.
• The article, "What is supply chain disruption and why is COVID-19 different?"
• Rodney Manzo, Founder and CEO of Anvyl, discusses supply chain disruptions and having a bias for action.
• Where grit comes into play in surviving COVID-19, an interview with Matt Hertz, Co-Founder of Second Marathon.

COVID-19 facts and trends in retail and supply chain #

December 23, 2020

FDA approves COVID-19 vaccine, distribution begins #

On Friday, December 11th, the FDA approved Pfizer’s and BioNTech’s COVID-19 vaccine. By Sunday morning, UPS and FedEx trucks pulled out of Pfizer’s production plant in Kalamazoo with the vaccination vials, bound for central distribution centers and 145 health departments and hospitals around the U.S. The refrigerated trucks carried more than 500,000 doses of the vaccine, keeping the vials at an extraordinary -94 degrees Fahrenheit.

A New York nurse was the first to receive the Pfizer-BioNTech vaccine on Monday morning. Healthcare workers treating COVID-19 patients and nursing home residents are at the front of the line. Operation Warp Speed (OWS) aims to have the nation vaccinated by the middle of 2021, which is no small undertaking. It requires 16 million package deliveries to thousands of vaccination sites within 64 jurisdictions.

The following Friday (December 18th) the FDA approved Moderna’s vaccine. About 20 million doses will be delivered to 3,285 locations in the U.S. by the end of December.

Stretched to their limits #

The massive distribution effort coincides with the holiday shipping surge, leaving parcel carriers more strapped than ever before. Carriers like FedEx and UPS hired tens of thousands of workers to handle the peak season. To pay for the extra labor, they implemented shipping restrictions on retailers and additional surcharges on shipping. Analysts expect as many as 7 million holiday-related packages are shipped daily from Thanksgiving through December–an extreme volume on top of the millions of vaccines being distributed across the country simultaneously.

Logistical planning #

Before the vaccine’s official approval on the 11th, the healthcare supply chain and OWS prepared with end-to-end pilot distributions to test the physical and digital delivery infrastructure, partnering with McKesson, FedEx, and UPS, who are on daily operational calls with OWS leaders. The tests included assessments of Pfizer’s custom-made shipping boxes to keep the vaccines cold and secure.

UPS and FedEx provide white glove delivery of the vaccine to the front door of the recipient location. Carriers typically use two-driver teams for shipments to keep trucks moving and ensure valuable cargo isn’t left unattended.

What could go wrong? #

Despite extensive planning by OWS leadership, parcel carriers, and healthcare providers, there are a number of variables that could throw the logistical effort off-kilter. Refrigeration problems could ruin doses, and logistical snafus could delay shipments. If hospitals botch the challenge of scheduling a continuous stream of people to get the shots, doses that are defrosting might go bad. And the pandemic itself could sideline some of the armies of workers involved in the effort. Other risks include everything from cyber and physical attacks on supply chain management systems to the introduction of counterfeit vaccines, diversion of real vaccines to the black market, and mismanagement that leads to spoiled vaccines.

Tech-driven distribution #

This complex logistical effort leans heavily on digital platforms. OWS uses a data platform called Tiberius to help visualize data from multiple sources to monitor the rollout operation. This platform integrates data from various agencies and includes information on manufacturing, supply chain, allocation, state-level planning, and other information. It also calculates allocations for the initial distribution. Jurisdictions will work inside the Tiberius platform to decide where every allocated dose—from local doctors’ offices to large medical centers.

Vaccine distribution does not rely on one platform. IBM, Oracle, Salesforce, Microsoft, and Google work with governments and health agencies to manage the vaccines’ distribution to ensure that the limited supply of vaccines is distributed equally, without wasting precious doses.

Retailers at work #

Walmart, Walgreens, and CVS entered into agreements with the federal government to distribute the vaccine. The retailers prepared their pharmacies to receive the vials, ensuring they are fully stocked with freezers and dry ice to keep the vaccine at the right conditions.

Walmart implemented a process to inform customers when to come in for their first and second doses. Throughout the pandemic, Walmart was a major player in retail, developing safety practices for stores that others have adopted, including occupancy limits, mask requirements, and ramped-up store sanitization.

CVS hired 15,000 new employees in Q4 to help scale the administration of the vaccine. Soon after, CVS announced that the federal government selected them as the primary provider to administer COVID-19 therapy to eligible patients in long-term care facilities and homes.

Analysts estimate that CVS and Walgreens could each make up to $2 billion from Medicare payments alone for vaccine administration.

October 5, 2020

Where to put all those warehouses #

Amazon does not see the growth in eCommerce retail from COVID-19 slowing down and it is making it clear that the only way to support and accelerate that growth is to position goods close to customers.

This week, it was reported that Amazon plans to add 1,000 more warehouses across the U.S., but these facilities are a little different. All, if not most are said to be smaller delivery hubs localized to provide free and fast delivery to suburban neighborhoods. The expansion not only supports Amazon's commitment to free, one-day delivery, it also entices residential shoppers to skip the store and order online. The plans are also said to mimic UPS's distribution footprint which will enable Amazon to reduce it reliance on long-time carrier partners, and instead focus on its in-house delivery services.

Unlike most predictions, the warehouse structures themselves will likely not include abandoned department stores or malls. Multi-story buildings aren't suitable for warehousing operations and many malls have sanctions around incorporating delivery hubs next to still-operating stores. It ruins the shopping experience.

"It’s more likely that dead malls will be bulldozed to make way for an Amazon warehouse, as they have in the Midwest, than for an Amazon delivery station to sprout in a half-vacant mall to coexist with Kay Jewelers and Cinnabon."

Speaking of malls... #

According to Coresight Research, a record 25,000 retail stores are expected to close this year.

Prior to the pandemic, retailers and real estate developers had high hopes of creating a new type of shopping and lifestyle experience by reinventing the mall. Hudson Yards is a perfect example. It is the most expensive mixed-use development in the country, seeking to combine retail, fine dining, office space, and upscale apartments. It opened in March of 2019. But, COVID hit hard. By April 2020 it was reported that 75% of Hudson Yards' retailers weren't able to pay rent and in July, Neiman Marcus ended its lease. Neiman Marcus was the "crowned jewel" of Hudson Yards.

Reinventing the in-store experience isn't a moot point, but there is no doubt it is forever changed. The only way for retailers to survive is to invest in digital solutions. From driving more eCommerce sales to truly understanding their customers and how to connect with them, retailers must recreate the opulence they achieved in store and transfer that experience online.

September 4, 2020

Gearing up for Q4 #

Q4 holiday peak is right around the corner and there are more uncertainties this year than ever before. Not knowing if or when a second wave of COVID-19 will happen has left many businesses wondering what in-store traffic will be, if anything at all. Certainly, there will be higher eCommerce sales, but how high? And, how will that impact buying behaviors? Already this year, we saw an unprecedented surge in eCommerce volumes - the same amount of growth in 10 weeks as we saw in the last 10 years.

Meanwhile, Whole Foods just opened its first dedicated darkstore in Brooklyn to manage online sales, Walmart has already released its hottest toys list for the holiday season, and Amazon Prime Day (usually in July) won't happen until at least October 5, after being delayed three times this year due to COVID-19. With more holiday shopping moving online, many are speculating that the holiday rush could start even earlier this year.

It's impossible to predict the future, and this year that rings especially true. Retailers and brands must be prepared and invest in their logistics and delivery networks to manage peak-season demand. Technology-based logistics solutions provide a layer of flexibility that enables them to better manage the unexpected. And, that will be critical this year. With Q4 around the corner, businesses must be able to turn on a dime.

August 12, 2020

Under pressure: The supply chain and the vaccine #

The world is holding its breath for a COVID-19 vaccine. As drugmakers push clinical trials forward, questions about administering vaccines, when the time comes, are top of mind. It will be no small feat and the supply chain that will support it is massive. eCommerce has already accelerated eCommerce retail, which has shown us what happens when a supply chain is inundated: delivery delays, stock outs across verticals, and general uncertainty.

To prepare the medical supply chain, the U.S. government allocated $10 billion for Operation Warp Speed, which is focused speeding up vaccine development AND solving the distribution problem to 300 million people--all of which is set to be accomplished by January 2021.

There are a lot of logistics behind these logistics. Pharmaceutical companies face a lot of challenges, including finding enough warehouse capacity and transportation providers to support the movement of a vaccine. Again, we saw what happens when eCommerce demand suddenly spikes in retail.

Given Operation Warp Speed's projected timeline, there's also the clear consideration for logistics providers and the supply chain industry as a whole: What will it look like if the Q4 holiday peak and distributing the vaccine collide? The vaccine takes priority, but given the uncertainty of a second wave and more sales moving online, eCommerce logistics are already up against a lot. How will the supply chain manage that pressure?

On the topic:

• Drugmakers Race to Build Covid-19 Vaccine Supply Chains, The Wall Street Journal
• The World’s Supply Chain Isn’t Ready for a Covid-19 Vaccine, Bloomberg

July 10, 2020

The environmental upside of COVID-19 #

It's July. In March, when COVID-19 hit the U.S., it's unlikely that anyone thought this would still be impacting the world in July. As we continue to navigate COVID-19 and its impact on our everyday lives, many supply chain professionals have hope for what's to come. In an interview with Flexe, Kevin Dooley, Supply Chain Management Professor at ASU, discussed the value of sustainability in the supply chain. In May, 155 CEOs from global brands committed to invest in systemic socio-economic transformations to make the supply chain more resilient.

The pandemic has focused attention on how dependent we all are on what happens in other parts of the world for the products we use every day. As businesses look to reinvigorate their operations after the crisis, current innovations in sustainability certification can help build more resilient supply chains through a stronger focus on continuous improvement, transparency, and shared responsibility.

The future of supply chain is digital #

COVID-19 continues to expose the value of supply chain across every industry, but it has also exposed vulnerabilities. As COVID-19 evolves and society is faced with managing an economic recession, businesses are turning to digital supply chain solutions to iteratively improve supply chain operations that were so clearly impacted--and continue to be. In an interview with Harshad Kanvinde, supply chain leader at Slalom Consulting, he said:

Longer term is all about digital—but that was true pre-COVID-19. Hopefully most businesses won’t just pick up where they left off, but will learn from this and really focus on how digital can help tackle real challenges and opportunities, like customer obsession. If you're not using digital in that transformative way, why are you wasting your money and someone else's time? Don't go and start 100 pilot projects just so you can say that, "I'm doing something in AI."

The future of supply chain is digital, but a critical first step is deeply understanding the problem you need to solve. It sounds simple, but in times of crisis, making critical decisions is a major challenge.

Other articles from this week:

Navigating the Supply Chain Risk Due to COVID-19 - Why some companies were more prepared to brace for impact and respond, while others were left to scramble.

The Ongoing Impact of COVID-19 on Global Supply Chains - Many companies are entering a "recovery mode" but the importance of supply chain resilience and risk management are apparent.

June 16, 2020

Costco is (even more) open for business #

Costco sales are up. It recently announced sales numbers from May - up 7.5% from May 2019 - in which net sales totaled $12.55 billion. The average selling price of fuel was down to $2.06 per gallon ($3.13 a year ago), which impacted comp sales by just more than 3%. But, by the end of May, 90% of services were back up and running in stores, including optical, hearing aid, and photo departments.

Retailers that are excelling amidst chaos #

All of the retailers that you would expect to excel, have.

• Amazon continues to dominate even during a pandemic. In Q1, sales grew 26% YoY.
• As noted above, Costco sales have increased 7.5% YoY.
• Target saw 10.8% sales growth in Q1.
• Walmart saw a 10% increase in Q1, with a 74% increase in eCommerce sales

Retailers that have been consumed by chaos #

So many retailers have been irreversibly impacted by COVID-19. Here is a list of those that have been hit the hardest. The common denominator? Not enough investment in eCommerce capability to quickly transition operations and offset the disruption of having to close stores during the pandemic.

• American Eagle Outfitters lost $257.2 million from store closures
• Brooks Brothers is looking to raise financing for a potential Chapter 11 bankruptcy
• Burlington Coat Factory saw total sales decrease by 51%
• Dick's Sporting Goods said sales as of May 2 were down 30.6%
• Dillard's total retail sales decreased 47% after it significantly discounted merchandise to reduce inventory on hand
• Gap reported 43% drop in sales
• GNC sales only dropped 10.1% but the company has announced it may need to file for Chapter 11 bankruptcy
• JCPenney will permanently close 154 stores after filing for bankruptcy
• J.Crew was the first major retailer to file for bankruptcy
• Kohl's saw a 43.5% decrease in sales because of store closures
• Macy's expects a loss of $1.1 billion for the period ending May 2; in 2019 it lost $203 million
• Neiman Marcus filed for Chapter 11 in May with approximately $4 billion in debt
• Pier 1 Imports was approved for bankruptcy and will shutter all 540 stores
• Signet Jewelers, parent company to Kay Jewelers, Zales, and more, will close 280 stores worldwide after sales declined 44.7%
• Starbucks is closing 400 stores and expects to lose $3.2 billion because of the coronavirus
• Zara will close 1,200 stores worldwide

On the other side of the pandemic, the retail landscape will look a lot differently than it did before. Major retail giants will have gained even more market share, and household brands will have fallen to the wayside. Still, innovation is around the corner and we will not be left with only a handful of options. More digitally enabled brands will emerge and incumbents will have grown even stronger. In any scenario, the supply chain plays a major role and more investment and innovation is on the way to further optimize the delivery of goods.

May 30, 2020

eCommerce sales are up, consumer confidence is not #

According to the US Census, in Q1 2020, eCommerce sales were $160.3 billion, an increase of 2.4% from the previous quarter and 14.8% higher than the first quarter of 2019. But, consumer confidence has declined. The Consumer Confidence Index precipitously declined to 86.9 in April 2020, a 31.9% decrease from March, and The Present Situation Index saw a 90-point drop. These steep declines are primarily due to unemployment records and uncertainties due to COVID-19. However, short-term expectations did improve, but fluctuations are expected in the coming months as many aren't sure what the financial repercussions will be.

eCommerce can get expensive, but Target is still prevailing
#

Target has gotten a lot of praise for its ability to quickly pivot and accommodate more options during COVID-19. In Q1, more than 5 million people shopped on Target.com with 40% doing curbside pickup in stead of home delivery. Then in April, an average day had higher fulfillment volumes than on Cyber Monday in 2019. But it isn't cheap. The operations to support eCommerce fulfillment and curbside pickup has already cost impacted profits by $500 million due to associated costs.

The wrong kind of real estate footprint has left some retailers in the dust #

The flood of eCommerce orders have left a lot of retailers scrambling to figure out what to do without losing sales. One major culprit is the lack of requisite warehouse capacity, fulfillment operations, and ability to move quickly. Online grocery sales is expected to grow 40% in 2020, but many do not have the infrastructure that will allow them to take part in that upslope. Meanwhile brick-and-mortar retail is already taking a hit with major household names shuttering their doors. In order to avoid being on that list, retailers are looking for more warehouse capacity and services to support a better online and delivery experience for their shoppers. Rightfully so.

May 15, 2020

Making moves: Online shopping grows despite decline in retail sales #

Retail sales fell 16.4% in April from the month before, which is the largest drop since record-keeping began in the early 1900s. Manufacturing also fell 13.7% - the lowest since 1972. The sharp decline may be a result of restaurants being closed, but a large part of it is very clearly due to retail stores being closed. The exception in the decline was in eCommerce, or "non-store retailers", almost not surprisingly. Compared to March, eCommerce sales grew 8.4%. Other changes include:

• Grocery sales were down 13.2%
• Bars and restaurants were down 29.5%
• Furniture sales dropped 58.7%
• Electronics were down 60.6%
• Clothing sales dropped 78.8%

Reshoring hits close to home for a lot of businesses #

According to a recent survey, 64% of manufacturers say reshoring is likely following pandemic. Bringing suppliers closer to end consumers has been one of the biggest predictions for supply chain changes once we're on the other side of the pandemic. However, some are skeptical that the momentum will be sustained as we move farther away from the initial pang of the disruption.

Meeting in the middle: BOPIS grows 208% #

Buy online, pick up in store (BOPIS) has had a big year. Social distancing has reduced in-store foot traffic for retailers that are still open, prompting many shoppers to opt for delivery or ordering online and driving to the store to pick up their order. The pandemic continues to accelerate eCommerce, but it isn't great for every category. Some are having to discount to the extent they would for BFCM.

May 8, 2020

eCommerce was 17% of U.S. shopping. Now, it's 25%. #

Store closures and panic buying created a spike in demand and a move to online last month. Now, demand is starting to normalize and shopping patterns are changing. Some estimate this is the "second wave" of shopping where it's going to become clearer how sticky new shopping behaviors really are. eCommerce is up to 25% of U.S. shopping, but will it stay or will it recede?

Tesla shuts down all production worldwide
#

Elon Musk announced that all production has halted for Tesla. It's unclear why, but Bloomberg suggests it could be due to the complicated nature of Tesla's parts and the supply chain that supports production.

Google's fastest-growing product searches for free #

Google released a new tool on Think with Google called "Rising Retail Categories". Marketers can see what product categories are growing the fastest for free. This week in the United States:

1. Candied and chocolate-covered fruit: +80% (Happy Mother's Day!)
2. Cocktail mixes: +70%
3. Fresh cut flowers: +70%
4. Taco shells and tostadas: +70%
5. Volleyball nets: +50%

Work from home, work it out #

With gyms closed, Peloton sales were 66% higher and its fitness subscriber base is up 94% YoY. Society is slowly reopening in some regions, but some habits, like creating a fitness routine outside of a gym, might be here to stay.

May 1, 2020

Less first-generation warehousing space in 2021. #

• Construction workers are active and on site for essential industrial real estate projects in 80%—or 16 out of 20—of the top U.S. markets for under-construction space, which represent 70% of total under-construction national inventory.
• With some construction projects on hold, there will be less first-generation space entering the market in 2021, which could result in the overall vacancy rate falling to pre-COVID-19 levels towards the end of 2021.
• CBRE has reduced leasing activity for the record-making 309 million square-feet under construction at the end of 2019.

Will eComm represent 25% of retail in 2020? #

The growth in eCommerce we expected to take 5 years has happened, seemingly, overnight. Target’s digital sales are up 275% and Shopify sales are approaching BFCM levels ... in April.

Baby boom. #

eCommerce is up, but especially in baby products (611%), medical essentials (434%) and cleaning supplies (210%).

Inventory is here with nowhere to go. #

Industrial vacancy rates in Q1 2020 were at 4.4%. Inventory isn’t moving and capacity is running out. Industry experts are saying global container shipments will fall by 30% in the next few months if space isn’t made. U.S. container ports handled 1.51 million TEUs, a 17.0% decrease from the previous month and 6.8% lower year-over-year.

Warehouse searches are up YoY. #

Flexe data shows that warehouse search volume is up 2X YoY. The Southeast region of the U.S. increased 74% with Atlanta, GA seeing 3.5X increase. Searches for warehouses in North Carolina are up 57% and searches for New Jersey are up 28%.

Making decisions isn’t easy. Here’s why. #

According to the Gartner report, “Coronavirus Requires Supply Chain Leaders to Adopt Enhanced Decision-Making Abilities”, disruptions increase the number of decisions that need to be made and 80% of supply chain professionals say decision-making could be better. Meanwhile, 76% of supply chain professionals say disruptions are increasing and 72% say they are becoming more impactful.

Recovering from COVID-19 #

According to a survey from Egon Zehnder, 60% of respondents believed it would take more than 3 months to recover from COVID-19 when asked in March 2020. (Egon Zehnder)