December 15, 2021

Q4 2021 Market Watch: Holiday Peak Season Part 3

Black Friday / Cyber Monday recap: Spending is up. Store traffic is down.

Flexe institute december market watch bfcm web resources 3000x1690

After months of peak-season planning, the first round of Black Friday / Cyber Monday numbers are in.

Key Takeaways

  • November consumer spending increased by 11.9%, with many holiday shopping deals starting early
  • Early Q4 shopping contributed to the 52% decrease in Black Friday foot traffic
  • Out-of-stock notifications increased by 169% YoY, impacting brand loyalty
  • Warehouse vacancy rates hit a new low in November at 4.3%, leaving several shippers unable to build and maintain safety stock
  • Mounting labor challenges, record dwell time, and fines at the ports continue to squeeze shippers’ margins

November consumer spending increased year-over-year. Despite best efforts, the Black Friday / Cyber Monday (BFCM) weekend came with widespread stockouts and decreased in-store traffic. Furthermore, backlogged inventory stuck at the ports may wreak havoc on inventory levels in 2022. Without correct inventory allocation for the remainder of the year, retailers and brands risk losing sales and overall brand loyalty.

Supply chain headlines fueled early holiday shopping #

Consumers shopped early and mostly online. Supply chain disruptions made headlines each week leading up to BFCM, leaving 75% of consumers worried about stockouts— specifically about not getting orders in time for the holidays. Seventy percent of shoppers began as early as October, and nearly 20% opted for curbside pickup to receive online orders on Cyber Monday instead of waiting for delivery.

25% increase in five-year lease rates for industrial properties

WSJ, 2021

Cyber Monday sales hit just under $11 billion, dropping slightly from 2020; Black Friday sales hit approximately $8 billion and saw a 52% decrease in Black Friday foot traffic YoY. With November consumer spend reaching $109 billion, the BFCM weekend made up approximately 17% of all November sales, a 19% jump since 2019 pre-pandemic BFCM levels.

While holiday sales increased, so did the prices.

Consumers pay the price, impacting brand loyalty #

Inflation plagues this holiday shopping season, yet analysts predict big numbers by the end of 2021. The consumer price index increased 6.7% YoY as of December 10, the highest year-over-year increase since 1982. And over BFCM, the average product discount was down 7% from the same time in 2020.

But, consumer patience for holiday inventory stockouts is wearing thin. Consumers experienced a 169% increase in out-of-stock messages in November. And more than 30% of consumers couldn’t buy everything on their holiday shopping lists. To avoid stockouts, 70% of consumers will switch retailers or brands; only 13% wait for items to restock.

As expected, ongoing port delays, limited warehouse capacity, and labor shortages were to blame for these consumer experiences.

4.8% warehouse vacancy rate; amongst the lowest of all time

JLL, 2021

Ongoing disruptions complicate holiday shopping #

Port congestion relief is slow despite 24/7 operations and the threat of new fines. In October, the Ports of Los Angeles and Long Beach announced a $100/day fee on carriers if cargo dwelled in ports longer than nine days, but those have yet to materialize after being delayed four times already. Though the announcement led to a 37% increase in port throughput in October, throughput rates declined heading into November, with average dwell times hovering at 21 days.

Middle-mile transportation providers face obstacles. An ongoing chassis shortage prevents carriers from expanding fleets to support port volumes. According to chassis manufacturers, the shortage results from a lack of subcomponents like air tanks, axles, and suspension systems. Currently, 30% of truckers at the Port of Los Angeles remain idle due to the shortage.

Many shippers continue to look for capacity. Warehouse vacancy rates hit new lows in November—a national average of 4.3%. And increased demand for space caused 7% rent increases. Tertiary markets such as the Inland Empire saw the steepest rent increases at more than 15%, leaving little reprieve for retailers that need space. The backlogged, inbound supply chain could face greater repercussions with industrial vacancies at record-low levels. At the end of Q3 2021, retailers had enough merchandise on hand to cover only one month of sales, and the ratio is expected to drop even further by the end of Q4.

Retailers have enough merchandise on hand to cover only one month of sales.
Federal Reserve Bank of St. Louis, 2021

Labor challenges persist. Logistics providers struggle to attract and retain the necessary labor to meet increased demand. Higher wages are typically the best method to combat this; however, it impacts both shippers’ and logistics providers’ margins. Forty-two percent of logistics providers say it’s difficult to attract and retain labor due to the physically demanding nature of jobs; 23% say it’s due to low wages. A warehouse associate’s average annual salary is now $50,000, an increase of 18% from 2020. And despite average truck driver salaries increasing 11% YoY, turnover rates reached as high as 90% earlier this year for some large carriers.

Looking ahead #

The National Retail Federation (NRF) predicts retail sales will grow 11.5% YoY by the end of Q4, outpacing the original 8.5% estimate. The increase in consumer demand presents challenges for shippers and logistics providers alike.

With so many goods still stuck on ships, there’s potential for out-of-stock items to arrive well into Q1 2022, which strains warehouse capacity further. And without decongested ports, adequate warehouse space for inventory, and sufficient labor to move and process goods, retailers and brands risk losing sales.

Stay tuned for the next Flexe Market Watch to see what’s in store for the last few weeks of 2021.

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