- Tags : Supply Chain Risk
By: ProcurementIQ Staff Writer, Mallory Weiler
The holiday season is hectic for businesses and individuals alike. As families and friends begin planning and hosting festive parties, businesses rush to produce, sell and transport all of the products that can serve as the bow atop a perfect celebration.
This year, according to the National Retail Federation, holiday retail sales are expected to rise 3.8% to $680 billion, snowballing from $655 billion in 2016. This increase is in line with an overall upward trend in consumer spending during the past three years, which ProcurementIQ states has been increasing at an estimated annualized rate of 2.8% in the past three years. While many retailers will benefit from heightened consumer spending this holiday season, online retailers will be the main beneficiaries of this increase; e-commerce sales have been skyrocketing at an estimated annualized rate of 13.1% in the three years to 2017.
In response to heightened online sales during the coming holiday months, major retailers will adapt their employment structures by on-boarding large numbers of temporary warehouse staffers. The need for shipping materials will also swell, as will demand for delivery services. As a result, demand and prices for temporary warehouse staffing, corrugated boxes and letter and parcel delivery services will rise. While production costs will increase for the largest retailers, year-round other buyers of these goods and services will also be affected and should take steps to plan accordingly for rising prices.
Shifting Seasonal Employment
Some of the biggest retailers are gearing up for the prolific amount of at-home ordering to come during the holiday season. While they are looking to hire no more temporary employees than they did in 2016, major retailers are allocating greater numbers of temporary employees to work at distribution centers rather than brick-and-mortar locations. For example, Amazon plans to hire 120,000 seasonal employees, which matches their hiring efforts from last year. Additionally, while Walmart will be allocating extra holiday hours to its current staff instead of hiring temporary in-store employees, it has shared plans on hiring 5,000 seasonal workers for its distribution centers this year. Similarly, while Macy’s plans to hire a total of 80,000 temporary employees this holiday season, which is fewer than its hiring efforts in 2016, it is adding a greater number of seasonal hires to its fulfillment facilities. The reallocation of seasonal employment among major retailers shows how online shopping has been defining the holidays in recent years and will continue to shape hiring efforts in the years to come.
A shift in hiring efforts during the holidays has led to increased competition among suppliers trying to attract their required talent. Temporary employees are in high demand at the end of the year, with many products to wrap and ship as the holidays approach. As such, temporary warehouse staffing is also prone to seasonal price fluctuations. Unfortunately, in the three years to 2017, ProcurementIQ estimates that the price of temporary warehouse staffing has been increasing an average of 3.4% annually to reach $18.84 per hour per employee. Accordingly, even businesses not directly impacted by the holiday retail frenzy, such as industrial supply wholesalers and manufacturers, will feel the effects in their supply chains and should anticipate paying more for temporary warehouse staffers during the holiday season.
Packages, Boxes & Bags!
Higher employment costs during peak holiday shopping months aren’t the only added expense that businesses should be wary of. When e-commerce activity rises, demand for shipping materials typically follows suit. For example, prices for corrugated boxes historically tick upward during the holiday season as online retailers stock up on packaging used to ship gifts. From 2014 to 2017, growth in consumer spending and rising e-commerce sales have been stimulating demand for corrugated boxes, pushing prices up at an average annualized rate of 3.2%. Price growth not only impacts retailers but also businesses that use cardboard boxes for their everyday shipping needs, like produce packagers and household product manufacturers.
Delayed Deliveries on a Slippery Slope
As consumers are crunched for time to receive their gifts, courier companies like FedEx and United Parcel Service (UPS) also experience surges in demand during the final months of the year. Aside from seasonal fluctuations in price, an overall increase in demand for shipping services has led to higher shipping costs. According to ProcurementIQ estimates, letter and parcel delivery service prices have been rising at an estimated annualized rate of 1.6% in the three years to 2017.
Moreover, a blizzard of package deliveries during the holiday months typically leads to declines in on-time delivery performance despite deliverers’ efforts to hire temporary staff in recent years. Such disruptions are troublesome for online retailers and frustrating for shoppers. Also, prolonged shipping times affect businesses not traditionally associated with the holidays. For instance, businesses as wide-ranging as electrical contracting firms and construction firms are dependent on receiving supplies and parts through the mail during the holiday months. These operators may be subject to longer lead times, which can delay the completion of their projects.
Too Early to Deck the Halls?
The effects of an uptick in retail activity this season will touch many markets in the economy, resulting in increasing demand and prices. Businesses can protect themselves by using various sourcing strategies before the full effects of the holiday season hit. For instance, engaging in supply contracts before prices spike at the end of the calendar year may lead to decreased prices on labor and inputs. Stockpiling cardboard boxes and shipping materials in advance of the holiday season can also help businesses avoid supply chain disruptions, helping their daily operations run smoothly.
- Heightened consumer spending will lead to stronger sales this holiday season, particularly online.
- Major retailers are focusing their hiring efforts on their distribution centers more than they have in recent years, causing price fluctuations for temporary warehouse staffing during the holiday season.
- Increased online ordering during the holidays will lead to greater demand for boxes to ship products in, resulting in higher corrugated box prices.