Supply chain impacts holiday season before it even starts

The peak holiday shopping season is the time that many merchants make their most revenue. But as this year’s peak season approaches, 95% of merchants have had to adjust their planning in response to supply chain disruptions and market conditions.

In addition, 59% of SMB merchants report that their margins have shrunk, largely due to supply chain conditions. Overall, 80% say their supply chain costs have risen with 42% citing elevated freight costs. To compensate, 46% of SMB merchants have increased prices. Only 19% of merchants have simply absorbed elevated supply chain costs.

Those are the top line findings of survey conducted in July and August by Dynata of 1,000 U.S. SMBs with $500,000 to $100 million in revenue. The report, “How Margin-Conscious Merchants Can Entice Recession-Wary Consumers,” was released by UPS start-up Ware2Go. The report also includes findings from a survey of 1,000 U.S. consumer respondents aged 18+ on shipping and holiday shopping preferences, also conducted in July/August 2022.

As might have been expected, inventory is a primary concern. Two-thirds of respondents have faced inventory challenges this year. Twenty-three percent overbought while 19% say they invested in the wrong inventory as consumer buying habits changed in 2022.

Those challenges have resulted in 68% of SMRs changing their inventory ordering strategy for the upcoming holiday season. The top three changes are:

1. Changing the types of products they’re purchasing (33%)
2. Ordering more inventory than previous years (23%, and
3. Ordering inventory earlier than previous years (21%).

Consumers are also aware of supply chain disruptions, with 68% planning to start their holiday shopping earlier this year.

And with a possible recession on the horizon, 74% of consumers plan to adjust their holiday spending – prioritizing lower price gifts, purchasing fewer gifts in general and purchasing different types of gifts.

What, then, can merchants do to entice holiday shoppers? According to consumers:

• Offer free shipping (56%)
• Offer deal days, coupons or promotions on online products (55%)
• Offer 1- to 2-day shipping on all purchases (42%), and
• Reward customers with extra loyalty points (37%).

Consumers also want to make more sustainable purchases – with 74% reporting that sustainability is an important factor in their purchasing decisions.

At the same time, consumers’ expectations have increased when it comes to shipping. In short, survey respondents say the COVID-19 grace period is over. In 2021, 57% of consumers said they had lowered their expectations for timely shipping. However, this year only 16% have lower expectations around 1- to 2-day shipping.

And small businesses won’t get a pass, either. In fact, 65% of consumers expect small brands to ship as fast, or faster, than major chains.

Fast shipping presents a major opportunity for brands looking to build customer loyalty. Seventy-six percent of consumers say they are more likely to make a repeat purchase based on a fast shipping experience.

Consumers still prefer online shopping for holiday gifts.

In 2021, only 2.9% of shoppers said they “rarely prefer in-store” and “only look to online shopping”. This year, the preference for online-only shopping has risen to 15%. And while shoppers plan to start earlier this year, 81% report they will purchase some gifts online at the last minute.

Merchants looking to maximize profits this holiday season can’t ignore consumer preferences for online shopping. That means building out robust digital sales channels, matched by a fulfillment network to meet a variety of delivery expectations.

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