More than $245 Billion was spent online in the US during Q4 of 2020, with a large percentage of that number being concentrated around the holidays. That’s close to $1 for every $5 spent on physical retail as a whole during that same period, an increase of over 32 percent from the previous year.
As impressive as those figures might be, they pale in comparison to the estimated $4 Trillion in losses suffered as a result of disruption in global supply chains last year. While retail sales during the holidays were recently projected at over $1 Trillion in the US for 2021, the actual cost of retail goods are expected to rise by an additional $223 Billion—a sobering thought for retailers and consumers alike.
Materials, Supply Deficit and Consumer Demand
The events of 2020 may have sparked an unprecedented surge in eCommerce, with ten years worth of growth during the first three months alone. But as purchases increased, so did the actual physical cost of raw materials. While over $2 Trillion was received in part by US consumers during the first round of the federal stimulus package, the subsequent demand driven by additional disposable income has constrained supplies enormously.
The month of June saw a 5.4 percent consumer price increase across all categories, with goods from suppliers outpacing consumer spending. While material costs are predicted to increase by as much as an additional 10 percent by the end of 2021, China in particular is facing the strain due to potential restrictions on the production and import of raw goods. As a result, limited output and temporary shutdowns have surged across the nation in spite of a reported 137 percent growth in manufacturing profits during 2020. Yet the relative scarcity of raw materials hasn’t quelled global interest in Chinese goods, which saw a five year high of 300,000 units exported during September of last year.
But the spike in shipping fees just might make consumers reconsider their holiday spending this year.
Feeling the Crunch: Delivery, Spending and the 2021 Holiday Season
According to recent data from Salesforce, the average selling price of nonessential consumer goods increased by 11 percent during Q2 2021. Yet in spite of a projected discretionary spending decrease of $16 Billion in the US this year, consumers are actually expected to increase their online purchases by nearly 18 percent in 2021, with Black Friday alone predicted to top $17 Billion in sales.
Under any other circumstances, the projected increase in consumer demand this holiday season would be encouraging for most retailers. But predictions are never set in stone. What is certain this holiday season will be the increase in shipping rates. US companies are expected to spend three times the amount for ocean freight delivery this year, adding $163 Billion to the already skyrocketing fees for international commercial shipping. Nor is the spike isolated to international marine transportation. As early as January, both FedEx and UPS announced an increase in delivery rates for high volume customers, leaving many online sellers with little choice but to raise prices to meet the subsequent charges—a perilous tightrope walk in a retail environment where 75 percent of consumers view free shipping as a necessity, not a luxury.
The Implications of Supply Chain Disruption on eCommerce
Unfortunately, the direct impact of lengthier and more expensive delivery and production methods on digital retail can’t be understated. Inventory management in eCommerce has by and large been predicated on “Just in Time” (JIT) strategies, where processes of production and manufacturing are initiated by both current and predicted sales volume. And prior to 2020, JIT has been a strategy which proved more than sufficient for digital commerce so long as peaks and ebbs in sales traffic remained reasonably consistent. But it’s a strategy that demands reevaluation in 2021 and beyond.
2020 proved neither reasonable nor consistent. And unfortunately for consumers and retailers alike, there is no quick fix solution.. The aftereffects of the past two years aren’t just affecting eCommerce. Global economies as a whole are being transformed in ways no one could have successfully predicted even five years ago. Supply chains may need to be reimagined in order to adapt to this disruption, but so will merchant delivery methods. As will consumer demands. The line between production and purchase is becoming increasingly shorter—and friction is unavoidable.
The online shopper of 2023 is likely to be radically different from the average online customer in 2021. That’s largely because the very nature of online retail itself is amorphous and constantly evolving. Until both manufacturers and logistics providers move towards more innovative methods capable of sustaining the unparalleled growth rate of eCommerce, both spending and growth in both sectors will be constrained. Because the bottom line for customers is never about the process. It’s about the product.
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