5 Strategies for Retail Supply Chain Optimization This Holiday Season

It’s officially fall 2023: leaves are turning, festive lattes are brewing, and retailers everywhere are bracing themselves for the holiday onslaught. Even in the best years, it’s a stressful time for retailers, their employees, and shoppers alike. There’s no telling exactly what this season will hold. Indeed, any retailer that knows what’s going to happen in Q4 should book the first flight to Vegas. But there are a few clear trends at play.

The season’s usual stress is compounded by several standout factors, including inflation and labor shortages. Compared to the pandemic years, retailers have their inventories relatively under control — and many have returned to being fairly lean. Since still-high interest rates are keeping most folks from buying new homes, we should expect to see an increase in spending on home improvement and home decor products. The pause on student loan repayment has ended, which will diminish consumers’ discretionary spending, especially on nonessential categories like apparel. And since the pandemic trained us all to fear stockouts, risk-averse consumers might do their holiday shopping earlier than usual this year.

Given this outlook, what can retailers do to boost their chances of a successful holiday season? Whether they sell sweaters, screwdrivers, or sugarplums, here are some clear steps they can take to ensure a happy holiday season and a prosperous 2024:

1. Invest in loyalty.

Retailers are facing a dual loyalty challenge going into this holiday season, both in terms of customers and employees. The labor market is still experiencing shortages and high turnover, and employees are demanding unprecedented flexibility — even in shift work, like retail. In addition, after years of supply shortages and price shocks, customer loyalty has still not recovered from the pandemic.

Wise retailers will recognize that these two factors go hand-in-hand: well-trained, knowledgeable and happy employees are essential to customer experience, loyalty and sales. Retailers should focus efforts toward employee retention, starting with flexibility. One simple solution? Extending Black Friday sales over multiple days or even weeks, thereby minimizing employees’ stress during the traditional sales rush. Many retailers are already doing this, not only to spread out the season but also to incentivize those risk-averse, early bird shoppers as well as meet consumer demand with better precision.

2. Apply — and share — cutting-edge technologies.

From inventory to labor, technology is helping retailers solve a number of current supply chain challenges. A decade ago, most retailers’ decisions around how much inventory to carry or how much demand a promotion would generate were largely based on gut. In contrast, today’s retailers have sophisticated tools at their disposal, including advanced analytics, machine learning, and artificial intelligence. These tools have helped retailers return closer to the lean levels of inventory we saw pre-pandemic.

Advanced analytics can also help retailers analyze their various vendors and identify areas of improvement. And technology can boost employee productivity and, therefore, happiness and retention — helping to offset the labor shortage.

A sub-industry has grown out of this technology revolution, where retailers that are not in direct competition choose to share technologies in order to save costs. For example, retailers are increasingly sharing space at cutting-edge distribution centers, loaded with robotics and automation, which have moved closer than ever to the last mile to satisfy consumer demand for instant fulfillment. Sharing is a smart, cost-slashing option for retailers looking to boost customer loyalty and redistribute funds toward retaining their employees.

3. Master the art of the return.

The next frontier for retailers to tackle — and it’s a frontier that borders inventory management, order fulfillment, customer retention, and more — is the dreaded product return. Online shopping is still at a high, meaning retailers must brace themselves for massive volumes of returns this holiday season.

Retailers should do all they can to optimize their returns strategy — for the holidays and for the foreseeable future. Packaging can be used to identify, at the point of return, whether an item is re-sellable. Point-of-sale systems can also be connected to the point of return, so the system can see if any stores are out of a particular returned item — boosting the opportunity for resale, as well as customer satisfaction and loyalty in the process.

And while these and other optimization measures do come at a cost, retailers should avoid charging customers for their returns. In this environment of rock-bottom customer loyalty, a return fee is a major turn-off and will undoubtedly reduce sales. Mastering the art of the return is a worthwhile investment.

4. Perform a post-holiday analysis.

There wasn’t much point for retailers to perform any post-holiday analysis last year, when supply chains were still rife with anomalies. This year, however, we seem to be hitting a balance: consumers are enjoying being back in stores, which might balance out demand reductions related to inflation and student loans. Signs suggest that 2023 will be a pretty textbook year in terms of analysis for future performance.

Of course, this analysis is easier said than done. After the holidays, retailers are in recovery mode. They're taking a deep breath from the crowds, marking down inventory for sales and, before long, planning for the next busy season. However, they should make an effort — using the advanced analytics and AI now at their disposal, of course — to analyze their performance, optimize their strategies, and clinch customer loyalty for the next year.

5. Analyze, optimize, and be merry.

According to McKinsey, the retail sector has experienced as much disruption in the past five years as it did in the previous 25. That’s a sobering statistic for retailers heading into their most stressful season.

True, most consumers have fewer spending dollars this year. Yes, labor is short and customer patience is shorter. And indeed, it remains to be seen whether retailers have stocked enough inventory to fulfill the need through the holidays — at this point, it’s probably too late to order another container and expect it to arrive on time.

But retailers should go ahead and be merry. Most signs point to a 2023 holiday season that will more closely resemble “normalcy” than anything we’ve seen since 2019, which is something we can all be thankful for. And by making just a few strategic moves, retailers can take full advantage, sailing into the New Year with happier employees, more loyal customers, and even bigger plans for holiday season 2024.

Mark Delaney is the vice president of global industry strategy retail at FourKites, a real-time supply chain visibility platform.