Date: Tuesday, November 29, 2022
Peak season isn’t what it used to be.
For decades, retailers had an idea of what to expect around the holidays: a short but massive plateau in volume and supply chains that (for the most part) were expected to run smoothly.
When COVID-19 hit, it changed everything. Peak season got even longer, demand got even stronger and supply chains were thrown completely out of whack.
But even in the new normal of peak season, there will always be some nuances from year to year, and 2022 is no different.
One strategy retailers embraced in 2020 and 2021 was smoothing that sharp plateau of volume into more of a hill by using discounts and additional sales events to spread out demand.
This year, retailers have taken that approach to a new level. Amazon, for example, introduced what was essentially a second Prime Day sale a few months after its initial event as a way to capture some shoppers early and take them out of the mix down the line.
Other sellers have done the same, like Target, which plans on offering its “biggest Black Friday week sale ever” and following that up with a huge two-day Cyber Monday sale. Still others have put out huge discounts to entice buyers in a tight economy.
“Obviously, that’s to get rid of the inventory glut that came through at the back end of COVID,” explained Jorge Lopera, vice president of global strategy at logistics platform FarEye. “But I think a lot of that has really captured some of the buyer pool a little bit earlier into the season.”
In fact, according to the National Retail Federation, a record 166.3 million people are expected to shop during Thanksgiving weekend this year, a whopping 69% of shoppers the organization surveyed.
However, don’t be fooled — Lopera predicts that overall sales growth during peak season will remain flat. Because more shoppers will knock out their holiday shopping during Thanksgiving weekend, Lopera expects that shopper numbers later in the year will not experience the same jump.
Another mitigating factor is inflation. While more people than ever before are expected to shop on Black Friday and Cyber Monday, a tight economy could limit how much each shopper spends during the events.
Of course, sales are only one part of the equation. Actually delivering the order to the consumer is a whole different animal, and this year, retailers face some unique challenges.
Attracting drivers has been a major pain point for retailers, carriers and other logistics operators all year long, and the situation remains dire heading into peak season.
For some retailers, raising wages has been the strategy of choice to add human capital. Amazon, for instance, recently bumped pay for delivery workers in a bid to steal drivers from FedEx and UPS.
Others have scaled back their efforts, like Walmart, which hired 40,000 seasonal workers as opposed to 150,000 last year, in part because it staffed up early. FedEx too has said it plans to decrease seasonal hiring, citing expectations of lower parcel volumes.
But Lopera sees raising wages as a great strategy for retailers, one that can even avoid rising costs — if they do it right.
“It doesn’t matter if I pay a driver $15 or $20 an hour,” he opined. “If I’m able to improve their stop efficiency by 25-30%, then at the end of the day, I don’t really care what I pay the driver. I care what I pay per stop.”
By using technology, retailers can complete more trips with each driver. Large retailers like Amazon are well-positioned in that regard.
“They have route optimization. They have the right technology. They’ve made those millions of dollars of investment in making sure that their fleets are organized,” Lopera explained. “You have the right capacity where the demand is going to be, you have the right amount. You’re not sending a truck out with five parcels — you’re sending a truck out with 150. And they can just streamline those unit economics to make it work.”
Large sellers like Amazon are also using technology to communicate with their customers, sharing things like ETAs or alternative delivery windows in the case of a stockout. That’s essential because the vast majority of consumers say they would switch to a competitor if they have a poor e-commerce experience.
“You either have enough capacity, or you’re going to slip on your SLAs [service-level agreements],” Lopera said. “But [Amazon is] pretty dynamic in how they manage their commitments to end consumers. They know what they can fulfill, they have SLAs, they have machine learning that tells them, ‘It takes X amount from click to delivery,’ and they surface that for you at checkout.”
But what about smaller retailers, which typically lack the capacity and technology of a juggernaut like Amazon? Well, there’s a path to success for them too.
Lopera emphasized fleet augmentation as a potential game changer. While small retailers don’t usually have the capacity to keep up with FedEx or UPS, they can build partnerships with the vast array of logistics companies that offer on-demand third-party networks.
“Not everyone’s going to have, you know, thousands of vehicles branded, ready to go, every single day,” he pointed out. “It’s really the shared economy, it’s the shared logistics network that retailers need to rely on.”
But those partnerships can go to waste if a retailer doesn’t understand their volume. Small sellers can also work with data collection firms to build demand forecasts and predict exactly when they’ll need capacity. Together, fleet providers and data can level the playing field, and retailers have increasingly embraced that joint strategy amid the rise of omnichannel fulfillment.
“Now, inventory is not just in a distribution center, right? It’s everywhere,” Lopera explained. “That omnichannel fulfillment phenomenon is not going to stop. You’ve got dark stores, you’ve got microfulfillment, shared fulfillment, you’ve even got retail locations that are deploying parts of their locations for fulfillment. So now, because inventory is everywhere, it’s impossible for small retailers to have fleets that are going to cover all of these distribution points.”
Another thing small retailers should emphasize is the returns experience. Last year, shoppers returned billions of dollars of merchandise, and the NRF expects similar returns volume for 2022.
Some companies are looking at charging customers to return items in order to recoup on lost sales. But according to research from First Insight, three-quarters of shoppers would be deterred from buying from a retailer that charges for returns.
Another strategy is the establishment of return depots, small centers where customers can drop off returned items. Return depots can be inside of a store, or they can stand alone as small hubs for reverse logistics.
But whichever direction they’re looking at logistics, Lopera advises small retailers to keep data at the forefront.
“At the end of the day,” he asserted, “logistics is a data game, and it’s an efficiency game. And if you’re able to capture those two and use those two things the right way, it’s going to lead to happy customers and a better bottom line.”