As holiday season rapidly approaches, major retailers are forecasting higher costs and empty shelves due to relentless supply side disruptions. Skyrocketing shipping rates, labor shortages and headwinds in the trucking industry are all contributing to elevated costs in the sector that are unlikely to subside this year.
While those costs are going to be passed onto the consumer, survey data shows that more than a third of shoppers are forecast to spend more this holiday season compared to the pandemic ridden season last year, likely negating part of the increase in final prices. Retailers are likely to stage a comeback as COVID-19 cases continue to decline and shoppers prepare to splurge on gifts after being largely unable to last year.
Related ETF: SPDR S&P Retail ETF (XRT)
Retailers Battling Persistent Supply Headaches
The global supply chain has been in complete disarray since the beginning of the pandemic, but effects around the world have lasted much longer than many originally anticipated. One of those consequences is the fact consumers are likely to pay more for their gifts this coming holiday season as retailers are struggling with empty shelves and higher costs.
A major factor adding to the retail sector’s troubles is the constant backlog of container ships at ports from Los Angeles to Southern China. MRP has previously highlighted the shipping industry, noting that shippers were raking in record-breaking profits due to rates that skyrocketed to unimaginable levels.
Nikkei Asia recently reported that shipping rates from China to the US have recently plunged from their record highs, falling from $15,000 per 40-foot container to around $8,000. However, that is still well above the pre-pandemic rate of $1,500 and is expected to remain elevated through holiday shopping season as demand ramps up.
Marlo Cordero, executive director of the Port of Long Beach which will move roughly 20 million containers this year, told Business Insider that the shipping industry is in crisis mode due to persistent backlogs. That has led to constant delays and shortages for retailers across the US.
Not only has shipping across the seas been a headache but transporting goods by truck has been another hassle. Labor shortages in the trucking industry have stalled deliveries, added extended delays and cut into retailers’ profitability due to higher transport costs. The truck driver shortage is so significant that companies are now aiming to have teens, aged 18-20, learn how to drive large tractor-trailers to alleviate some of the effects of the deficit, per The Wall Street Journal.
The labor shortage is plaguing retailers as well. Retail Dive writes that companies are planning to hire hundreds of thousands of workers before the holiday shopping season. To due so, they’ve enticed workers with higher wages, bonuses and even tuition assistance. As of July, the number of retail job openings reached 1.2 million, up from 876,000 in 2020.
Price Tags Jump as Shoppers Gear Up for Holiday Season
While retailers have had to pay more and offer greater incentives to new hires, they’re also raising price tags at a time when shoppers are expected to spend significantly more this holiday season. A recent Klarna survey, highlighted by Retail Dive, found that 34% of shoppers expect to spend more during the holidays compared to the 2020 season.
Further, 62% of respondents plan to shop at big-box retailers, while 37% said they would…
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