The supply chain challenges currently facing the retail sector have been well documented, but taking a longer view of the situation is crucial, says Erin Brookes, managing director for European retail and consumer at Alvarez & Marsal.

Retailers are gearing up for one of their biggest operational challenges ever as they deal with a perfect storm of supply chain issues caused by Brexit and Covid in the run-up to the holiday shopping season.

Myriad disruptions, ranging from a post-pandemic surge in demand to a rise in shipping and oil costs and Brexit-fuelled staff shortages in the UK, have stretched retailers’ supply chains to breaking point. 

Stocks in October reached their lowest level since records began in 1985, according to the Confederation of British Industry, leading to product shortages and delivery delays.

At the same time, analysts are hopeful about Christmas and Black Friday sales given improved expectations for consumer spending in November. 

UK consumer confidence rose three points to -14 compared with a previous reading on October 22, according to research company GfK, despite decade-high inflation and concerns around product scarcity.

Retailers are reassuring shoppers that stock from toys to Christmas puddings and turkeys will be on the shelves, while also encouraging people to buy sooner rather than later to avoid disappointment.

Perhaps more proactively, some players brought forward their festive range launches while others, including John Lewis and Marks & Spencer, have released their special Christmas adverts slightly earlier than last year. 

In the US, big retailers such as Ikea and Walmart are going as far as to chart their own container ships in their quest to keep shelves and warehouses stocked.

“Industry experts believe that the current logistics woes will persist into 2022, making it imperative for companies to adopt the best practices to build resilience”

While these measures may help iron out some of the immediate issues, retailers must rethink their supply chain strategy with a long-term view. 

Industry experts believe that the current logistics woes will persist into 2022, making it imperative for companies to adopt the best practices to build their supply chain resilience.

This includes ramping up communication with trading partners and logistics providers, improving warehouse visibility and bolstering fulfilment and demand-forecasting capabilities. 

Technology is a key ally here, with data analytics and artificial intelligence-based systems increasingly being used to anticipate potential disruption and respond to problems in real-time. 

Crucially, this holiday season will also stress-test retail supply chains’ preparedness for the new, post-pandemic shopping experience. 

Data from the Office for National Statistics showed that internet sales in the UK continued to grow as a percentage of total retail sales in September and now stand at 25.9% – well above pre-Covid levels.

As the shift from in-store shopping to ecommerce accelerates further, many consumers will likely rely on digital channels more during this year’s festive period than ever before.

Retailers should therefore ensure that stock planning and discounting is thoughtful to ease pressure on the home delivery network.

There may be improvements to be made to distribution systems, for example by using stores as additional warehouses, a model we saw take off in the grocery sector. 

Another pinch point that should be closely monitored is the handling of reverse logistics as high return rates become the ‘new normal’ after the pandemic – especially in a strongly discounted market that encourages impulse buying.

Managing ecommerce system risks is also key. Overloaded networks during the peak of lockdown are still a fresh memory for many shoppers and they may not be as forgiving this time around. 

And every year Black Friday demand puts additional pressure on retailers’ websites, with many moving to ‘Black Friday Week’ to spread demand over a longer period and preserve the operational integrity of their systems.

The above challenges become even more pressing considering that the ‘shape’ of Christmas has become less and less predictable given the level of discounting and the shift in consumer behaviour sparked by the pandemic. That means retailers have an arduous call to make when stock planning for seasonal selling.

“In today’s fiercely competitive market, poor supply chain management can have lasting negative effects on brand value and consumer loyalty”

It’s also worth remembering we’re entering a cost-of-living crisis in the UK, with significant fuel inflation and rises in food and drink prices as well as wage pressures still threatening confidence in the economy in the coming months.

In today’s fiercely competitive market, poor supply chain management can cause stockouts that not only affect sales during a critical period, but also have lasting negative effects on brand value and consumer loyalty. 

After a tough 18 months for the industry, retail leaders should be focused on maximising sales during the festive season, rather than putting out fires.

Ultimately, those agile in avoiding supply chain bumps will be able to thrive – and not just survive – during the golden quarter.

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Accelerating out of crisis, transforming the future

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