Larger retailers could steal Christmas from smaller retailers this year, as they are in a better position to deal with widespread supply chain bottlenecks and labor shortages.
Christmas is a critical season for retailers around the world. Sales increase sharply this season as shoppers spend extra money to buy gifts for loved ones, items to decorate their homes, and goods to celebrate.
According to estimates by Statista.com, retail sales for the November-December period usually count for about 25% of annual sales.
However, for some segments of the industry like toys, games, hobby items, and jewelry, Christmas sales count as much as 35%, meaning that the two-month season could make or break the year for the retailers in the industry.
That’s why every year, retailers put up their best efforts to be well prepared for the season, stacking up the right products and launching the right marketing campaign to lure people into their stores or sites.
But this year, a couple of things are different.
First, the pandemic is easing in some areas while it is rising in others, making it hard to figure out shopper spending patterns.
Second, supply chain bottlenecks, like long delays at ports, shortage of containers, and cargo ship vessels, have made it difficult for several industries to secure enough supplies to accommodate seasonal spikes in demand.
Supply chain issues are more pronounced in retailing that relies on overseas merchandise suppliers from China, Vietnam, Pakistan, and Latin American countries than industries that rely on domestic sourcing.
Larger retailers with big pockets like Walmart, Target, and Costco have found ways to overcome the supply chain bottlenecks by chartering their ship vessels, stacking up products for the Christmas season. For instance, Walmart has increased inventories 11.5% ahead of the holidays, raising its EPS guidance for the quarter.
Target Corp. is on the same page as Walmart.
“With a strong inventory position heading into the peak of the holiday season, our team and our business are ready to serve our guests and poised to deliver continued, strong growth, through the holiday season and beyond,” said Brian Cornell, chairman and chief executive officer of Target, following the release of the company’s third-quarter results.
Smaller retailers, by contrast, do not have the deep pockets of larger retailers to charter their ship carriers and cope with supply chain issues. They also have a host of other challenges like minimum wage hikes and labor shortages. And they don’t have the pricing power of larger retailers to pass on the rising costs to consumers.
That’s why larger retailers could end up stealing Christmas from smaller retailers this year.
“Larger retailers have several significant advantages including a more robust approach to supply chain challenges, the ability to better take in the increased costs and not pass them on to consumers, and a wider range of products to draw in visitors,” said Ethan Chernofsky, VP of Marketing at Placer.ai, a foot traffic analytics company.
Still, the stealing of Christmas by larger retailers isn’t a foregone conclusion, as smaller retailers have their strengths and capabilities.
“Smaller retailers also have strengths to leverage, including the ability to adapt faster and local knowledge to better optimize product ranges and align strategies to drive visits,” adds Chernofsky. “Success will center largely around how each retailer leverages their own specific strengths this season to overcome the unique obstacles being presented.”
Simply put, larger retailers may have the scale to deal with supply chain and labor shortages better than smaller retailers this Christmas season, but smaller retailers have better knowledge of local markets to cater their products and marketing campaigns to consumer needs. So by early January, we’ll all know which side wins the wallets of Christmas shoppers.
Disclosure: Mr. Mourdoukoutas owns shares of Walmart, Costco, and Target