One day, before the pandemic hit the United States, Rae Nicoletti just happened to email her contact at the Italian factory where she sourced most of the vegan leather for her handbag line. The abrupt reply was a retailer’s worst nightmare: The facility was closing permanently within the month.
Thankfully, the founder of Hozen, a Los Angeles-based digitally native brand, placed a big order with a vendor in December and purchased a ton of extra material, which got her company through until mid-summer. But with holiday orders looming, Nicoletti was left scrambling. After reading about biodegradable leather made from cacti in a fashion trade publication, she tracked down the alternative textile and partnered with a Mexican manufacturer.
“Unless something goes on there, too, I should be OK,” Nicoletti says. “I feel pretty lucky—I have a lot of friends in the industry who can’t get materials from overseas because plants have shut down. Even friends who do production in the states—those factories have closed because of social distancing. And here we are staring down peak season.”
Holiday forecasting and logistics planning is tough enough for retailers in a normal year. But developing a fulfillment strategy that adequately addresses supply chain, inventory management and delivery options for the all-important November-December period has become a herculean task in 2020. Merchants are sidestepping landmine after landmine with the uncertainty around COVID-19, and news of spikes in cases around the country has left retailers wondering just how merry the holidays will be.
“The best advice is to do contingency planning and get as prepared as possible for multiple scenarios, depending on where we might be by the holidays. What are the things that would spell disaster, and how do you avert those?” says Emily Pfeiffer, a senior analyst at Forrester Research Inc. “This unprecedented time uncovered a lot of breakdowns in everything from supply chain to last-mile delivery, and it calls for retailers to be as flexible as possible. The ability to pivot quickly and put a plan B in place is really, really key now.”
The pandemic has caused a particularly “lopsided mismatch” of supply and demand, so it’s entirely possible many retailers will be stuck with a lot of leftover inventory after a lackluster shopping season, Pfeiffer says. Conversely, others may miss out on opportunities to sell more to consumers buying online in greater numbers this year as they try to avoid crowded stores or can’t access them altogether. So retailers need to rethink their quantities and timing to mitigate issues or capitalize on buying patterns.
Bean Box got the memo. The online coffee subscription retailer has still been able to get enough beans from artisan roasters as shuttered cafés have resulted in a surplus. That allowed the company to keep up with surging demand for premium coffee at home during COVID-19 even though sales were triple Bean Box’s forecast for the period, according to CEO Matthew Berk. For December, he expects sales to be 3-3.5 times higher than last year. Since Bean Box’s products are perishable, the retailer can’t stockpile months’ worth of inventory in anticipation of a crazy holiday peak, but Berk has started placing orders 10-14 days in advance rather than a week out as a buffer for any sourcing snafus.
Potential packaging woes have given Berk some anxiety, too. Bean Box uses coffee bean bags that are manufactured in Taiwan, and shipments are taking much longer to clear customs because of the backlog. In previous years, the retailer ordered bags in more conservative quantities since it was easy to place another order later into the season if necessary, but things will be different when Bean Box orders Q4 packaging this summer.
“Normally, we don’t even have to think about it, but this year, we’re like ‘My gosh, it’s a huge cash flow hit, but order a million of those instead of a couple hundred thousand,’” Berk says. “And make sure you have two or three folks that you can turn to waiting in the wings in case—god forbid—something happens.”
Bean Box makes a little less than half of its annual revenue in Q4, so being prepared for the influx of holiday orders is crucial, he adds.
Ministry of Supply, a web-mostly brand that sells high-performance dress clothes, is facing the opposite dilemma as it tries to figure out what and how much customers will buy in an era where overall apparel sales have been plummeting. White-collar workers are largely clocking in from a home office, events like weddings have been canceled for the foreseeable future, and no one knows whether holiday gatherings will even take place. Additionally, although the retailer’s six shops just reopened after being closed for several months, Ministry of Supply has to be prepared for another round of store closures if the pandemic isn’t under control soon, according to Nicole Mazzola, retail operations manager. Considering the stores bring in one-third of the company’s annual revenue, that could translate into a big decline in what holiday inventory is moved—although the retailer did recently launch curbside pickup as a workaround for future closures or customers who are leery about in-store shopping.
Ministry of Supply recently shifted away from bulk ordering its pieces, opting instead to produce smaller quantities more frequently. Executives say they will double-down on the “mini-bulk” strategy for the holiday season to minimize risk. According to Aman Advani, the brand’s co-founder and CEO, retailers typically place an advance order with a three- to six-month lead time for up to 10,000 items, which theoretically would be enough inventory to stock its shelves for several months. But with mini-bulk, batch sizes cap out at 50 pieces, and lead time shrinks to just two to three weeks. This allows Ministry of Supply to be more agile—relying less on forecasting but rather adjusting based on actual customer demand.
“With mini-bulk, the consequences of being off in your numbers become much, much smaller. Instead of being understocked and missing tremendous demand for three to six months or being overstocked and having to put everything on clearance, you end up dramatically minimizing those two variances because you’re able to react quickly and not hold much inventory,” Advani says. “Financially, you’re much more stable than going with the alternative.”
While this allows the apparel brand to replenish its supply on a weekly basis as the team places four purchase orders a month rather than one every three months, it requires more administrative energy. But despite losing bulk discounting, the brand has still come out ahead so far.
Ministry of Supply is also being especially strategic with its product assortment right now—aiming for more season-agnostic staples like dress pants and suits that could be carried throughout an entire year if they don’t sell around the holidays, according to Mazzola.
“But the what-ifs can go on for infinity, so you have to sort out where you want to be bulletproof, where you want to hedge and where you’re OK taking a hit like everybody else,” Advani says.
While recent ecommerce performance has largely varied by merchandise category, overall, consumers have heavily relied on online shopping since COVID-19 reached pandemic status. In the United States, ecommerce sales hit $73.2 billion in June, according to research from Adobe Analytics—still up 76.2% year over year despite being past the panic-buying stage in early spring. Data is based on more than one trillion online visits to retail sites, including 80 of the top 100 retailers in the Digital Commerce 360 Top 1000, and covers 100 million SKUs.
Many industry experts say there is momentum heading into the holidays. Last-mile technology vendor Convey expects the 2020 holiday shipment volume for its 130 retail clients—which include The Home Depot Inc., Neiman Marcus and Eddie Bauer LLC—to increase at least 30% from last year. By comparison, shipment volume in November-December 2019 jumped by a moderate 14.2% year over year, with December alone seeing a 24.2% uptick. Convey’s data is based on tens of millions of packages shipped from more than 500,000 U.S. locations across the company’s client base.
But the rapid rise in ecommerce during the pandemic will further boost the number of packages going out this holiday season, according to Carson Krieg, Convey co-founder and director of strategic partnerships. And if the projection holds true, the on-time performance of shipping carriers will suffer.
According to Convey, 85% of holiday packages were delivered on time in 2018, but that dropped to 78% in 2019 with significant weather delays. On-time deliveries have already decreased “significantly” due to the pandemic, and “if peak network stress has a typical impact on carrier performance on top of that, we could see on-time performance drop even lower,” Krieg warns.
Marc Wulfraat, founder and president of MWPVL International, a supply chain and logistics consulting firm, agrees that the delivery ecosystem is already stretched to capacity limits. If carriers can’t manage it all, then the only option is to reduce the level of service, which could result in the order-by date for gifts to arrive on time for Christmas moving up as early as Dec. 14 or two-day shipping options taking closer to seven days, he adds.
This poses a problem for retailers that need to guarantee holiday orders will be delivered on time. According to a Digital Commerce 360 and Bizrate Insights survey of 1,000 consumers in March, 42% of survey respondents named the late arrival of packages as their biggest shipping and delivery concern. That was the No. 1 worry—even before the holiday calendar came into play.
The top priority for Tipsy Elves LLC, an online retailer that sells whimsical holiday apparel, is avoiding late deliveries. Since most orders are placed for specific events like ugly Christmas sweater parties, holiday pub crawls and family photo sessions, on-time shipping is at the crux of the company’s customer experience, according to Andrew Sutton, director of operations and fulfillment. If an item arrives later than promised, the customer has no use for it and returns the order for a refund, he adds.
The company offers five-, three-, two- and next-day shipping options that list an actual expected delivery date—not an ambiguous three days—at checkout. TipsyElves.com utilizes a real-time, rate-shopping carrier optimization tool that chooses between USPS, UPS and DHL eCommerce. The system uses an API call to retrieve carrier pricing and transit time estimates based on where the order is shipping from, product weight, residential vs. commercial addresses and delivery postal codes, defaulting to the cheapest option that will have the package delivered by the customer’s requested date.
But given the delays Tipsy Elves has already encountered this year, Sutton’s team will more closely monitor carrier performance throughout the peak season to make sure the retailer doesn’t continue to ship with a lagging carrier that routinely struggles to deliver on time. According to Sutton, it’ll be much more important for his team to study analytics from AfterShip, a shipment tracking platform, on a daily basis this year. That way, he can opt to disable an entire carrier or a method like UPS two-day because it has been late 20% of the time in the last two weeks, for example, and hopefully minimize problems.
Bean Box also has noticed a big increase in transit times for its orders during the pandemic, and Berk anticipates that will continue through the holidays. In an effort to combat that problem, the retailer will employ a “trick”: This Q4, Bean Box plans to more heavily promote the site’s pre-purchasing option to help regulate order flow during peak season and avoid last-minute rushes from frazzled gift buyers and iffy delivery timetables with overburdened carriers. Starting in September, the retailer will offer customers the ability to buy a gift then for scheduled delivery before Hanukkah, Christmas or other holidays.
For roughly 20 years now, the one holiday trend that has been consistent year after year was that consumers ordered later and later in the season, says Berk, a former research director who analyzed ecommerce trends. That possibly reached its apex last year, when shoppers ordered off of Amazon.com Inc. the day before Christmas and received their items on time, he adds.
“But maybe this is the first year in a very, very long time that we are slightly inconvenienced and there’s a consumer knowledge dawning about what’s reasonable,” Berk says. “I hope consumers will be more thoughtful around the calendar this year because we have, at least right now, a three-month history of stuff taking a little bit longer—whether because of handling or shipping or both.”
Favorite